FINANCIAL INDUSTRY REGULATORY AUTHORITY

OFFICE OF HEARING OFFICERS

DEPARTMENT OF ENFORCEMENT,

Complainant,

V.

NSM SECURITIES, INC.(CRD No. 134357),

NIYUKT R. BHASIN DISCIPLINARY PROCEEDING

(CRD No. 2282048), No. 2011027667402

NAVEEN K. BHAGWANI(CRD No. 5423037),

and

SHONDEEP S. BALCHANDANI(CRD No. 5165930),

Respondents.

COMPLAINT

The Department of Enforcement alleges:

SUMMARY

1. From March 2007 through September 2012 (the "relevant period"), NSM

Securities, Inc., acting through and at the direction of its fuunder, owner, President, and CEO,

Niyukt R. Bhasin, derived most of its revenue from actively and aggressively trading stocks in the

commission-based accounts of its retail customers. Prioritizing his firm's profits over the duties

owed to its customers. Bhasin chose not to establish a supervisory system tailored to NSM's

business. Instead, he fostered a culture of non-compliance that resulted in widespread sales

practice violations, numeious customer complaints, related reporting violalions, and cold-calling

abuses.

.. During lhe relevant period, NSM, through Bhasin, failed lo establish, maintain, and

enforce a system, including written supervisory procedures ("WSPs"), reasonably designed to

supervise the core activity in which its brokers engaged-active and aggressive trading.

Specifically, NSM, through Bhasin, failed to reasonably monitor for, detect, and prevent churning,

excessive trading, related violations of Regulation T, and unsuitable investment recommendations.

NSM, through Bhasin, also failed to adequately review electronic correspondence, adequately

handle customer complaints, and place certain brokers who were the subjects of multiple customer

complaints and arbitrations on heightened supervision. As a result of the furegoing, NSM and

Bhasin violated NASD Rules 3010(a) and (b) and 21 10 and FINRA Rule 2010.

3. NSM's culture of non-compliance fostered by Bhasin harmed his firm's customers,

as NSM's lax to non-existent oversight of its brokers resulted in significant sales practice abuses.

Specifically, NSM, acting though its brokers Naveen K. Bhagwani and Shondeep S. Balchandani,

engaged in unauthorized trading in seven accounts, churned and excessively traded five accounts,

and recommended qualitatively unsuitable investments to two customers. As a result of the

foregoing, NSM, Bhagwani, and Balchandani willfully violated Section 10(b) ofthe Securities

Exchange Act of 1934 and Rule 10b-5 thereunder and also violated NASD Rules 2310 and 2110,

IM-2310-2, and FINRA Rules 2020 and 2010.

4. In addition, Bhagwani misrepresented material facts to two customers, in willful

violation of Section 10(b) ofthe Exchange Act and Rule 10b-5 thereunder and in violation of

NASD Rules 2120 and 21 10 and FINRA Rules 2020 and 2010. ln part to cover up his fraudulent

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practices, Bhagwani also created. and forged his customers' signatures, on a letter that authorized

Ihe transfer of lheir funds, in violation of FINRA Rule 2010.

5. In implementing Bhasin's active and aggressive trading strategy and in order to

generate commissions, NSM committed multiple violations of Regulation T and the related

NASD/FINRA Rules governing the extension of credit. Specifically, NSM, acting through its

brokers, made a practice of allowing customers to: (a) buy securities in cash accounts where the

cost to buy the securities was met by the sale of the same securities (a/k/a free-riding); and (b) buy

securities in their margin accounts that resulted in margin calls and then impermissibly meet those

calls through the liquidation of the same securities or other securities in the accounts. As a result

of the foregoing, NSM violated NASD Rules 2520(f)(7) and (f)(9) and 2110 and FINRA Rules

4210(f)(7) and (f)(9) and 2010.

6. NSM's active and aggressive trading strategy, as developed and instituted by

Bhasin, led to numerous customer complaints. Between February 2009 and May 2012, NSM,

through Bhasin, failed to report 27 complaints to FINRA and also failed to timely report another

three complaints to FINRA. Therefore, NSM and Bhasin violated NASD Rule 3070(c) and

FINRA Rules 4530(d) and 2010.

7. Since December 2010, NSM, through Bhasin, has failed to disclose and/or timely

disclose material facts-six arbitrations and two customer complaints-on its brokers' Form U4s

or Form U5s. Bhasin willfully failed to disclose three of the arbitrations on his own Form U4 and

also willfully filed several false and misleading amendments to his Form U4, wherein he failed to

disclose the arbitrations. In addition, NSM, through Bhasin, filed an untimely and inaccurate Form

U5 fur its former Chief Compliance Officer ("CCO"). Therefore, NSM and Bhasin acted in

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conlravention of Article V, Sections 2 and 3 of FINRA's By-Laws and violated FINRA Rules

1 122 and 2010.

8. Lastly, NSM, lhrough Bhasin, failed to institute adequate procedures for cold-

calling prospective customers-one of its primary means of procuring new customers. As a result,

from April 2009 through October 2010, NSM, through its brokers and other representatives,

iniliated telephone solicitations to persons whose numbers were on the firm's do-not-call list

and/or the national do-not-call list. Therefore, NSM and Bhasin violated NASD Rules 2212(a)(2),

(a)(3) and (d) and FINRA Rule 2010.

RESPONDENTS AND JURISDICTION

NSM Securities. Inc.

9. NSM became a FINRA member in August 2005.

10. On January 22, 2014, NSM filed Form BDW, wherein the firm requested that its

FINRA membership be terminated. On February 20, 2014, FINRA cancelled NSM's membership

for failing to pay fees.

11. Bhasin founded NSM and has owned the company from its inception through the

present. Since its inception, Bhasin has served as the President and CEO of NSM. Since

approximately August 1, 2011, he also has served as its CCO.

12. Prior to filing Form BDW, NSM was an introducing broker-dealer that generated

most of its revenue from commissions charged to its retail accounts.

13. NSM maintained its principal place of business in West Palm Beach, Florida and

also had another branch office in New York, New York.

14. During the relevant period, approximately 20 to 35 registered persons were

associated with NSM at any one point in time.

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15. Under Article ?V of FINRA's By-Laws, FINRA possessesjurisdiction over NSM

because: (a) the Complaint charges the firm wilh misconduct committed while it was a FINRA

member; and (b) the Complaint was filed within two years of the firm's requested termination of

its FINRA membership.

Niyukt R. Bhasin

16. Bhasin entered the securities industry in 1992. He first became registered with

FINRA in January 1993 as a General Securities Representative ("GSR") (Series 7 license). He

subsequently acquired Series 24 and 63 licenses. Since 1992, Bhasin has been associated with five

FINRA members.

17. From February 10,2005 through January 22, 2014, Bhasin was associated with

NSM and registered with FlNRA through the firm as a GSR, General Securities Principal, and

Operations Professional.

18. At all relevant times, Bhasin was the President, CEO, and majority owner of NSM.

He controlled NSM.

19. Bhasin currently is not associated with a FINRA member.

20. Although Bhasin is no longer registered or associated with a FINRA member, he

remains subject to FINRA's jurisdiction for purposes of this proceeding, pursuant to Article V,

Section 4 of FINRA's By-Laws, because: (a) the Complaint was filed within two years after the

effective date of termination of Bhasin's registration with NSM, namely, January 22,2014; and (b)

the Complaint charges him with misconduct committed while he was registered or associated with

a FINRA member firm.

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Naveen K. Bhagwani

21. Bhagwani entered the securities industry when he joined NSM in September 2007.

He first became registered with FINRA in October 2007 as a Corporate Securities Limited

Representative ("CSLR") (Series 62 license). He subsequently obtained a Series 63 license.

22. On September 17, 2007, NSM filed a Form U4 for Bhagwani, commencing his

association with it as of that day. On October 4, 2011, NSM filed a Form U5 fur Bhagwani,

terminating his association with it as of the prior day. Bhagwani was registered with HNRA,

through NSM, as a CSLR from October 9,2007 through October 4, 2011.

23. On April 12, 2012, NSM filed two amended Form U5s fur Bhagwani, wherein the

firm, for the first time, disclosed that he was the subject of a written complaint and civil lawsuit by

customer NG, alleging margin-related suitability violations, and of a written complaint by

customer RS, alleging that he traded on margin in his account without a margin agreement.

24. On January 3,2013, NSM filed another amended Form U5 for Bhagwani, wherein

the firm, for the first time, disclosed that he was the subject of a written complaint and FINRA

arbitration by customer MV, alleging suitability violations.

25. Bhagwani currently is not associated with a FINRA member.

26. Although Bhagwani is no longer registered or associated with a FINRA member, he

remains subject to F?NRA's jurisdiction for purposes of this proceeding, pursuant to Article V,

Section 4 of FINRA's By-Laws, because: (a) the Complaint was filed within two years after the

date when NSM filed an amended Form U5 for him disclosing, for the first time. the written

complaint and arbitration of customer MV, namely, January 3,2013, and that amended Form U5

was filed within two years after the effective date of termination of his registration with NSM,

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namely, October 4, 2011; and (b) the Complaint charges him with misconduct committed while he

was registered or associated with a FINRA member.

Shondeep S. Balchandani

27. Balchandani entered the securities industry in June 2006. He first became

registered with FINRA in August 2006 as a GSR. He subsequently obtained a Series 63 license.

28. On March 9,2007, NSM filed a Form U4 for Balchandani, commencing his

association with it as of that day. On October 31,2011, NSM filed a Form U5 for Balchandani,

terminating his association with it as of that day. Balchandani was registered with FINRA,

through NSM, as a GSR from March 9,2007 through October 31, 2011.

29. On March 6,2012, NSM filed an amended Form U5 for Balchandani, wherein the

firm, for the first time, disclosed that he was the subject of a written complaint and FINRA

arbitration by customers HP and SJP, alleging suitability violations.

30. Balchandani currently is not associated with a FINRA member.

31. Although Balchandani is no longer registered or associated with a F?NRA member,

he remains subject to FINRA's jurisdiction fur purposes of this proceeding, pursuant to Article V,

Section 4 of FINRA's By-Laws, because: (a) the Complaint was filed within two years after the

date when NSM filed an amended Form U5 for him disclosing, for the first time, the written

complaint and arbitration of customers HP and SJP, namely, March 6,2012, and that amended

Form U5 was filed within two years after the effective date of termination of his registration with

NSM, namely, October 31,201 1; and (b) the Complaint charges him with misconduct committed

while he was registered or associated with a FINRA member.

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FACTS COMMON TO MOST CAUSES OF ACTION

Bhasin's Business Model

32. Bhasin, who is of Indian descent, founded NSM lo, among other things, establish a

broker-dealer where brokers of Indian descent would predominantly obtain and service customers

of Indian descent. During the relevant period, NSM operated accordingly.

33. The homepage of NSM's website provides that it seeks to "take advantage of

unique opportunities created in today's rapidly changing investment climate." Bhasin's trading

strategy, however, was little more than aggressive short-term trading in the commission-based

accounts of the firm's retail customers.

34. Bhasin's active and aggressive trading strategy-which was widely employed by

his firm's brokers-is to concentrate a commission-based account in a few securities,

predominantly stocks or other equities, liquidate the positions shortly after acquiring them, and

then repeat the process. Bhasin also encouraged his brokers to use leverage or margin, which

magnified the considerable risks associated with his aggressive strategy. As designed, Bhasin's

short-term trading strategy resulted in high turnover rates and cost-to-equity ratios in, and

generated relatively large commissions from, customer accounts.

35. Bhasin incentivized his brokers to actively trade accounts by basing their payout on

a sliding scale; NSM paid its brokers between 60 and 80 percent of their monthly gross

commissions depending on their production level (i. e., the higher the production, the higher the

payout).

36. Bhasin was keenly aware of the commissions generated from his firm's

customers-whom he referred to as "rental income."

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37. In order to procure a steady stream of revenue from his "rental income" during the

relevanl period, Bhasin directed his brokers to cold call prospects. In these calls, NSM brokers, at

Bhasin's direction, often solicited prospects by enticing them with the possibility of 15 percent

returns over the course of one to three months.

38. Bhasin's aggressive short-term trading strategy, coupled with his laissez-faire

attitude towards compliance, led to widespread sales practice abuses and numerous customer

complaints.

Bhasin's Control over NSM

39. During the relevant period, NSM acted by and through Bhasin, as well as its

brokers. Bhasin was the President, CEO, and majority owner of NSM and acted within the scope

of his employment when he and his firm committed the violations charged herein.

40. During the relevant period, Bhasin was responsible for making and made all major

decisions for his firm. He controlled the operations of NSM and its brokers, including the hiring

and firing of brokers. He possessed the ultimate power to direct the policies, procedures, and

personnel of NSM.

41. In order to implement his suspect strategy, Bhasin predominantly hired persons who

had no prior experience in the securities industry.

42. Bhasin hired a large number of NSM brokers who were not only new to the

securities industry, but who also were new to the United States, working on H-1 B visas sponsored

by Bhasin, through NSM.

43. Bhasin directed his firm's brokers to employ his aggressive short-term trading

strategy. At times, he pressured them to actively trade customer accounts, with little regard for the

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customers' investment objectives and risk tolerances. He even instructed his brokers on which

speci fic stocks to buy and sell.

44. Bhasin also sel sales targets for his brokers. On occasion, he exerted control over

them by threatening to cut their commissions or take away accounts if they failed to meet his sales

targets.

45. In addition, Bhasin instructed his fledgling brokers on cold-calling, prospecting for

customers, opening accounts, and recommending stocks. At times, he listened in on phone calls

between his brokers and new or prospective customers to coach them on what to say.

46. As the President and CEO of NSM, Bhasin was responsible fur ensuring that his

firm established, maintained, and enforced a system to supervise the activities of its registered and

associated persons in a manner reasonably designed to achieve compliance with applicable

securities laws and regulations and NASD/FINRA Rules.

47. In that capacity, Bhasin also was responsible for ensuring that the supervisory

duties or functions that he delegated were being appropriately exercised or handled.

48. In addition, the WSPs designated specific areas of supervisory responsibilities to

Bhasin, including: Customer Complaint Filing Requirements, Compliance Interviews and

Meetings, Review of Equity Transactions, Cold Calling and Telemarketing, Margin, and

Regulation T.

FIRST CAUSE OF ACTION

Supervision-Failure to Supervise and Deficient WSPs(NASD Rules 3010 and 2110 and FINRA Rule 2010)

NSM and Bhasin

49. The Department realleges and incorporates by reference paragraphs 1 through 48.

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50. NASD Rule 3010(a) requires each member to establish and maintain a system to

supervise tlie activities of its iegisteied and associated persons thal is reasonably designed lo

achive compliance with applicable securities laws and regulations and NASD/FINRA Rules.

5 t. NASD Rule 3010(b) requires each member to "establish, maintain, and enforce

written procedures to supervise the types of business in which it engages" and supervise the

aclivities of its registered and associated persons that are reasonably designed to achive

compliance with applicable securities laws and regulations and NASD/FINRA Rules.

52. FINRA Rule 2010 (f/Ida NASD Rule 21 10) requires members and associated

persons, in the conduct of their business, to "observe high standards of commercial honor and just

and equitable principles of trade."

53. During the relevant period, NSM's WSPs were both deficient and inadequately

implemented.

54. NSM's WSPs were deficient in several key areas relative to its business. They

failed to define excessive trading; they failed to provide guidance on how the firm would monitor

fur excessive trading and churning; they failed to define which customers would receive letters

regarding the activity in their accounts and when and why such letters would be sent to customers;

and they also failed to provide guidance on monitoring for unsuitable recommendations.

55. Both the 2008 and 2009 versions of the WSPs provided that NSM would use

"exception reports" to monitor for excessive trading and churning. Despite the fact that its

clearing firm had made such exception reports available to it since at least November 2006, NSM

did not begin obtaining the reports to monitor for excessive trading and churning until July 2010.

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56. Prior to June 2009, NSM took no discernible steps to monitor fur excessive trading

or churning, other than to review trades in isolation on a daily basis through order tickets and its

trade blotter.

57. On June 19, 2009, Bhasin instructed all NSM brokers to begin calculating the

turnover rates and cost-to-equity ratios on each trade ticket prior to entering a trade so that the

CCO at the time, Irving Burstein, could monitor trades fur excessive trading and churning.

58. Bhasin, however, failed to ensure that this system was adequately implemented or

enforced. The brokers only occasionally calculated and reported the turnover rates and cost-to-

equity ratios for their trades. Further, NSM did nothing to ensure that the brokers' calculations

were correct.

59. As noted, beginning in July 2010, NSM finally began obtaining exception reports

from its clearing firm to monitor for excessive trading and churning. These Monthly Active

Account Reports (the "Exception Reports") identified accounts that triggered one of the following

criteria on a monthly basis: (a) commissions in excess of $10,000; (b) more than 10 trades; (c)

cost-to-equity ratio in excess of 50 percent; or (d) losses greater than 15 percent.

60. The Exception Reports made clear that numerous accounts were being aggressively

traded and needed to be further investigated for possible excessive trading and churning.

61. Although Bhasin designated responsibility to Burstein to review accounts for

excessive trading and churning, Bhasin chose not to provide him with the Exception Reports.

62. ln any given month from July 2010 through September 2012, one-third to one-half

of NSM's brokers had accounts that appeared on the Exception Reports. NSM and Bhasin,

however, did not take adequate steps or implement reasonable supervisory measures to prevent

excessive trading and churning.

/2

63. The firm's 2008 and 2009 WSPs also provided that "comfort letters" would be sent

to certain customers, but they failed to define what the term "comfort letter" meant or specify the

circumstances when such letters would be sent to customers.

64. In July 2010, NSM began sending letters to customers whose names appeared on

the Exception Reports. These "Active Account Review" letters ("Active Account Letters") simply

stated that the firm's compliance department "routinely reviews active accounts to verify

suitability and investment objectives," indicated whether or not the customer's account was a

margin account, and displayed the customer's investment objective(s) and risk tolerance.

65. The Active Account Letters did not define what "active accounts" were, nor did

they explain why the customer was receiving the letter. NSM did not require customers to sign

and return, or even acknowledge receipt of, Active Account Letters.

66. From July 2010 until his departure in July 2011, Burstein sent the Active Account

Letters to customers.

67. In July 2011, Bhasin began sending more detailed Active Account Letters.

Although the new Active Account Letters explained that the customer was receiving the letter due

to the amount of activity in his or her account, Bhasin did not ensure that the letters were correct.

Between May and September 2012, NSM sent out 18 Active Account Letters with misplaced

decimal points on certain figures that made them misleading. For example, NSM sent an Active

Account Letter to customer SA dated September 11, 2012, wherein the firm represented that her

account had a monthly turnover rate of O.75 1 fur activity in August 2012, when, in fact, the actual

monthly turnover rate for that month, as reflected in the Exception Report, was 7.51.

68. In addition, NSM did not implement an adequate or reasonable supervisory system

to review trades fur unsuitable recommendations. According to the firm's WSPs, it only

13

monitored for unsuitable recommendations through a review of the daily trade blotter. A stand-

alone review of the daily trade blotler, however, was a grossly inadequate means of reviewing

trades for possible unsuitable recommendations, especially in light of the firm's active and

aggressive trading strategy.

69. NSM's WSPs also failed to specify how trades would be reviewed to monitor for

possible unsuitable recommendations. In other words, the WSPs failed to set forth the criteria to

determine suitability.

70. NSM also failed to place brokers on heightened supervision in accordance with its

WSPs. The WSPs required the firm to put a broker on heightened supervision when he or she had

a "history of customer complaints, disciplinary actions, and/or arbitrations. .'

71. During the relevant period, based on the foregoing criteria, NSM failed to put

Balchandani, Bhagwani, and brokers NB, HJ, RK, IA, and RD on heightened supervision.

72. Numerous customers complained either to or about the foregoing NSM brokers.

During the relevant period, 11 customers complained about Bhagwani; 12 customers complained

about Balchandani; 9 customers complained about NB; 15 customers complained about HJ; 5

customers complained about RK; 3 customers complained about RD; and 3 customers complained

about IA. The complaints generally echoed the same themes: excessive trading, unauthorized

trading, and unsuitable recommendations-critical sales practice areas for NSM's business model

for which its supervisory systems were grossly deficient.

73. As set forth below in greater detail, NSM and Bhasin also failed to report numerous

customer complaints to FINRA.

74. In September 2005, Bhasin hired Burstein to serve as a compliance officer. Bhasin

subsequently appointed Burstein to serve as the firm's CCO from June 14,2007 to July 31,201 1.

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75. Burslein, however, failed to perform his assigned duties under NSM's WSPs.

76. As Bhasin knew, Burstein's daily activities were limited to reviewing trade lickels

and the trade blotter at the end of the day and listening to the brokers' cold calls.

77. During the relevant period, the firm's WSPs designated specific duties to Burstein,

including the review of customer accounts to detect and monitor for: (a) unsuitable transactions;

(b) excessive trading activity; (c) unauthorized trading; (d) excessive losses; (e) excessive

securities concentrations; and (f) large debit balances.

78. Burstein failed to reasonably review customer accounts and transactions for any of

these things.

79. His review of customer account activity was limited to a quarterly review of the

documents in the customer files, which were selected on a random basis. Bhasin knew that

Burstein was not adequately reviewing customer accounts and transactions for the foregoing

activity. Yet, Bhasin did nothing about it.

80. The WSPs also designated responsibility to Burstein for: reviewing (but not

reporting) customer complaints; reviewing incoming and outgoing correspondence, including

email; handling registration and licensing matters; and implementing and enforcing heightened

supervision programs for brokers, when required or necessary. Burstein also failed to adequately

perform these responsibilities.

81. Bhasin knew that Burstein was not adequately performing these responsibilities. In

fact, Bhasin stripped Burstein of many of the tools and the authority that Burstein needed to

perform his responsibilities.

82. Even though Bhasin designated Burstein as the supervisor responsible for reviewing

email, Bhasin did not provide Burstein with a computer to review email.

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83. Burstein was designated to review correspondence, but Bhasin controlled access to

correspondence and often failed lo provide Burstein with customer complaints.

84. Burstein also recommended placing certain brokers who had been the subjects of

multiple customer complaints on heightened supervision, but Bhasin refused to follow Burstein's

recommendations.

85. Finally, once NSM began oblaining the Exception Reports in July 2010, Bhasin

refused to provide them to Burstein, even though the firm's WSPs designated Burstein as the

supervisor responsible for reviewing customer account activity for excessive trading and suitability

violations.

86. As a result of the grossly inadequate supervisory system established by Bhasin,

NSM brokers made unsuitable recommendations to their customers, engaged in unauthorized

trading, and excessively traded and churned accounts. This misconduct, in turn, resulted in many

NSM customers suffering significant losses during the relevant period.

87. In connection with its active and aggressive trading strategy, and as detailed below,

NSM violated Regulation T and the related NASD/FINRA Rules governing the extension of credit

during the relevant period. Specifically, NSM made a practice of allowing customers to: (a) buy

securities in cash accounts where the cost to buy the securities was met by the sale of the same

securities (a/k/a free-riding); and (b) buy securities in customers' margin accounts resulting in

margin calls and then impermissibly meet those calls through the liquidation of the same securities

or other securities in the accounts.

88. Bhasin was aware of these violative practices from emails and reports from NSM's

clearing firm, and yet, he took no steps to prevent them.

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89. NSM and Bhasin failed to establish and maintain a system to supervise the activities

detailed above that was reasonably designed lo achieve compliance with applicable securities laws

and regulations and NASD/FINRA Rules. As detailed above, they also failed to monitor fur,

detect and investigate "red flags" suggestive of misconduct by the firm's brokers.

90. In addition, and as detailed above, NSM and Bhasin failed to establish, maintain,

and enforce WSPs lo supervise its business, including its active and aggressive investment

strategy, and supervise its registered and associated persons, that were reasonably designed to

achieve compliance applicable securities laws and regulations and NASD/FINRA Rules.

91. As a result of the foregoing, NSM and Bhasin violated NASD Rules 3010(a) and

(b) and 2110 (for misconduct prior to December 15, 2008) and FINRA Rule 2010 (for misconduct

on or after December 15, 2008).

FACTS RELATING TO BALCHANDANI'S MISCONDUCT

Customer VR

92. In August 2008, customer VR opened a non-discretionary account at NSM after

receiving a cold call from Balchandani. VR had limited investment experience prior to opening an

account at NSM.

93. After the account was funded, Balchandani recommended the purchase of 200

shares of ICICI Bank (an Indian company) Limited Sponsored ADR. In keeping with Bhasin's

aggressive and active trading strategy, within a few days, Balchandani recommended and

purchased another 800 shares of the same security, thus concentrating the entire account in one

security.

94. After the initial recommended transactions, Balchandani began making

unauthorized purchases on margin in the account.

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95. Between August 12, 2008 and October 21,2008, Balchandani effected 12

unauthorized transactions in VR's account. (See Schedule A. 1 attached hereto and incorporated

herein for a table of the unauthorized transaclions.)

96. In October 2008, Balchandani sold all of the securities that he had purchased in

VR's account to meet margin calls, leading to total realized losses of approximately $104,625.

Balchandani's trading in VR's account generated approximately $15,857 in commissions fur

himself and NSM.

97. VR subsequently closed his account and initiated an arbitration proceeding against

NSM and Ba?chandani in February 2009.

Customers VP and SVP

98. Customers VP and SVP opened a non-discretionary joint account at NSM in

February 2011 after receiving numerous cold calls from Balchandani. Balchandani filled out VP

and SVP's new account form and falsely indicated that they were sophisticated investors and that

their investment objective was "speculative" and their risk tolerance was "aggressive."

99. VP and SVP were not sophisticated investors. Their previous investment

experience was limited to a self-directed account at a discount broker-dealer.

100. In addition, Balchandani failed to ask VP and SVP about their investment

objectives and risk tolerance when he opened the account.

101. Upon opening their NSM account, VP and SVP transferred a diverse portfolio of

cash and securities from their discount brokerage account to their NSM account; these holdings

reflected that VP and SVP had a moderate risk tolerance.

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102. Following Bhasin's aggressive trading strategy, Balchandani immediately

recommended that VP and SVP liquidate lheir entire portfolio, which generated approximately

$153,430 in proceeds.

103. Between March 9,201 1 and October 4, 2011, Balchandani effected 17 transactions

in VP and SVP's account, of which, 14 were unauthorized. (See Schedule A.2 attached hereto and

incorporated herein for a table of the unauthorized transactions.)

104. By placing unauthorized trades in the account of VP and SVP, Balchandani

exercised control over the account.

105. From February 2011 to October 2011, when Balchandani served as the broker on

VP and SVP's account, the annualized turnover rate for the account was 27.00 and the annualized

cost-to-equity ratio for the account was 68 percent. During the same time period, the account

suffered realized losses in excess of$56,000, while Balchandani generated approximately $19,551

in commissions and fees for himself and NSM.

Customers SP and NP

106. On May 29, 2009, customer NKP opened two non-discretionary Unifurm Transfer

to Minors Act ("UTMA") accounts for his minor children, SP (then 11 years old) and NP (then 15

years old), with Balchandani at NSM. Both accounts were intended to be used to fund the

children's college educations. The investment objective and risk tolerance for both accounts were,

as correctly coded on their new account documents, respectively "preservation of capital" and

"conservative."

107. When SP's account was opened, her parents transferred in cash and a diversified

portfolio of securities worth approximately $115,890.

108. Beginning in March 2010, and consistent with Bhasin's strategy, Balchandani

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began to excessively trade SP's account; all of this trading was unauthorized. Therefore,

Balchandani exercised control over SP's account. In total, Balchandani effected 29 unauthorized

transaclions in SP's account. (See Schedule A.3 attached hereto and incorporated herein for a

table of the unauthorized transactions.)

109. By July 2010, SP's entire account was concentrated in a single stock-Netflix; this

concentration level was unsuitable fur SP. (See Schedule B.1 attached hereto and incorporated

herein for a table of all unsuitable recommendations.)

110. In August 2010, Balchandani liquidated the position and concentrated the entire

account in an extremely speculative security-Direxion Daily Small Cap Bull 3X

- TNA, a triple-

leveraged exchange-traded fund ("ETF"), which was entirely unsuitable for a conservative

investor, like SP.

111. In September 2010, Balchandani liquidated the position and invested all of the

proceeds in another speculative ETF-Direxion Daily Small Cap Bear 3X

- TZA, an inverse ETF,

which also was entirely unsuitable fur a conservative investor, like SP.

112. As a result of Balchandani's unauthorized, excessive, and unsuitable trading,

between May 2009 and October 2011, SP's account suffered losses of approximately $72,485,

while Balchandani generated approximately $32,377 in commissions for himself and NSM.

During the period that Balchandani handled SP's account, the account's annualized turnover rate

was 4.77, and the annualized cost-to-equity ratio was 13.83 percent.

113. When NP's account was opened on May 29,2009, his parents transferred in

approximately $102,000 in cash and a diversified portfolio of securities from another broker

dealer.

114. Beginning in May 2010, and following Bhasin's strategy, Balchandani also began

20

to excessively trade NP's account; all of this trading was unauthorized. Therefore, Balchandani

exercised control over lhe account. ln lotal, Balchandani effected 27 unauthorized transactions in

NP's account between June 2009 and October 2011. (See Schedule A.4 attached hereto and

incorporated herein for a table of the unauthorized transactions.)

115. Balchandani made several purchases far in excess of the available cash in NP's

account and then liquidated those same securities to cover the costs of the purchases.

116. On May 25, 2010, Balchandani purchased 1,000 shares of Baidu stock, which

exceeded the available cash by $173.47. On June 20,2010, Balchandani liquidated the shares to

cover the purchase price.

117. On September 24, 2010, Balchandani purchased 10,000 shares of Direxion Daily

Small Cap Bear 3X Leverage ETF, a leveraged inverse ETF, unsuitable fur a conservative

investor, like NP. (See Schedule B.2 attached hereto and incorporated herein for a table of all

unsuitable recommendations.) The purchase price for these shares exceeded the funds available in

the account by nearly three times. On October 4, 2010, Balchandani sold a portion of this position

to cover the purchase price. Through this single purchase and sale, Balchandani generated

commissions of $9,820.

118. During the period that Balchandani handled NP's account, June 2009 through

October 2011, the annualized turnover rate was 5.77, and the annualized cost-to-equity ratio was

13.20 percent. Due to Balchandani's unauthorized, excessive, and unsuitable trading, NP's

account suffered losses of approximately $6,444, while Balchandani generated approximately

$20,439 in commissions fur himself and NSM.

119. In November 2011, customer NKP complained to Bhasin about Balchandani's

misconduct in SP's and NP's accounts and transferred the accounts out of NSM.

21

FACTS RELATING TO BHAGWANI'S MISCONDUCT

Customers CP and JP

120. In a March 2007 cold call, Balchandani convinced CP and JP to open ajoint account

at NSM. CP and JP own and operate a small hotel in Lexington, Kentucky. Prior to opening their

account at NSM, CP and JP held a joint account at another broker-dealer, which was primarily

invested in blue chip stocks and mutual funds recommended by their broker. CP funded the non-

discretionary NSM account with $3,694, which, on Balchandani's recommendation, was used to

purchase shares of Tata Motors (an Indian company) stock.

121. After the initial purchase, on Balchandani's recommendations, CP and JP deposited

additional funds into the account and over time transferred securities from theirjoint brokerage

account into their NSM account. Eventually, CP and JP placed almost all of the retirement savings

in their NSM joint account.

122. Following Bhasin's strategy, Balchandani actively and aggressively traded CP and

JP' s account.

123. Balchandani, NSM broker RD, and later Bhagwani had frequent telephone

conversations with CP. During these calls, Bhagwani told CP that he held other securities, such as

shares of stock in Visa, Citigroup, NFX Oil and Apple, worth hundreds of thousands of dollars and

explained that these holdings were not reflected on the NSM account statements he received, but

were held separately at NSM.

124. In March and June 2008, the three NSM brokers convinced CP to deposit an

additional $200,000 into his NSM joint account by promising that the new funds would generate

profi ts.

22

125. in July 2008, despite having deposited and/or transferred more than $500,000 in cash

and securities into the joint account, CP and JP's net account value was $165,120, with a margin

debit balance of ($568,436).

126. On August 13, 2008, CP and JP received a letter from NSM's clearing firm to

confirm their margin debit balance of ($568,436). CP called the clearing firm to inquire about the

holdings lhal did not appear on his statements, but he was directed by the clearing firm to contact

his NSM brokers.

127. In September 2008, Bhagwani became the broker of record on CP and JP's account.

On September 11, 2008, Bhagwani falsely told CP that by the end of December 2008, the shares of

stock in Apple, Visa, Citigroup and NFX Oil allegedly held by NSM and not reflected on CP and

JP's account statements would be worth almost $1 million. This statement was false, as there were

no other securities separately held by NSM or its clearing firm for CP and JP.

128. On September 19, 2008, CP and JP received a second notice from the clearing firm

requesting that they confirm the debit balance in their account of ($568,436). CP and JP did not

sign and return the letter as requested. Instead, CP called Bhagwani who told him not to worry

about the letter and that his investments were generating nice profits.

129. On September 30,2008, CP spoke with Bhagwani who told him that he had sent CP

documents to reflect his ownership of 5,000 shares of Visa stock and provided CP with a FedEx

tracking number. CP never received a FedEx delivery from Bhagwani.

130. Between September and October 2008, Bhagwani liquidated virtually all of the

holdings in CP and JP's account to meet several large margin calls. CP and JP's account suffered

realized losses of approximately $368,014, while the three NSM brokers generated fees and

commissions of $142,526 for themselves and the firm.

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131. In March 201 1, CP and JP initiated an arbitration proceeding against NSM,

Balchandani, Bhagwani, RD, Burstein, and NSM's clearing firm.

Customer DB

132. On November l0,2010, DB opened a non-discretionary account at NSM with NB as

his broker of record. At the time, DB owned and operated a hotel in Dodge City, Kansas.

133. Although the new account furm reflected that DB was an experienced investor who

had an investment objective of''speculative" and a risk tolerance of "aggressive," this information

was false. DB was not an experienced investor and did not have a speculative or aggressive

profile.

134. In November and December 2010, DB made deposits totaling $74,820 into his

account. On December 28,2010, without DB's authorization or consent, NB purchased 1,000

shares of Baidu stock for a total cost of$102,321, resulting in a commission of$3,451.

135. DB learned of the transaction when there was a margin call on his account in early

January 2011. At that time, Bhagwani became the broker ofrecord on the account, and he told DB

to deposit more cash into the account to cover the margin call.

136. Because DB did not have any additional available funds to deposit in his NSM

account, he borrowed money from another source to cover the purchase of Baidu stock.

137. Between January 201 1 and October 2011, when Bhagwani was the broker on DB's

account, he effected 29 unauthorized transactions in the account, and the account suffered realized

losses of $99,426 and generated $39,892 in commissions for Bhagwani and NSM. (See Schedule

A.5 attached hereto and incorporated herein for a table of the unauthorized transactions.)

138. Consonant with Bhasin's strategy, Bhagwani actively and aggressively traded the

account to generate commissions. For the period when Bhagwani was the broker of record on the

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account, the annualized turnover rate was 17.62, and the annualized cost-to-equity ratio was 34.64

percent.

Customer RS

139. RS opened a non-discretionary account with NSM in January 2010 after receiving

several cold calls from another NSM broker. Shortly after opening the account, RS became

dissatisfied with the broker's handling of his account-the volume of trades, the failure to explain

fees, and the pressure to invest more money in the account.

140. In autumn of 2010, RS submitted paperwork to transfer his account to another firm.

Bhagwani then called RS and convinced him to maintain his account at NSM. Bhagwani falsely

claimed to be a supervisor at NSM and promised that he would provide a better level of service to

RS by removing the margin debit and by providing RS with free transactions until the account

increased in value. At the time, RS's account held cash and securities worth $243,082, with a

margin debit of ($97,998) and a net value of $145,086.

141. After Bhagwani became the broker of record fur RS's account, rather than removing

the margin debit balance, as he had promised, Bhagwani continued trading on margin in the

account. The margin debit in RS's account ballooned over the first half of 2011, reaching a high

of($253,877) by the end of July 201 1. This represented approximately 73 percent ofthe total

account value of $347,832.

142. Consonant with Bhasin's strategy, Bhagwani actively and aggressively traded the

account to generate commissions. To that end, Bhagwani made 18 unauthorized transactions in

RS's account. (See Schedule A.6 attached hereto and incorporated herein for a table of the

unauthorized transactions.)

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143. In August 201 I, Bhagwani sold securities in RS's account to cover margin calls.

This resulted in significant realized losses. By the end of September 2011, due to the August

margin calls and other losses, the account had a net value of only $12,574.

144. In total, RS suffered realized losses of $143,223, while Bhagwani and NSM

generated $9,954 in commissions and fees.

Customer AM

145. After an October 2008 cold call from Bhagwani, customer AM opened a non-

discretionary account at NSM with Bhagwani.

146. Between May 2009 and September 2011, Bhagwani effected 225 unauthorized

transactions in AM's account. (See Schedule A.7 attached hereto and incorporated herein fur a

table of the unauthorized transactions.) Through his unauthorized trading, Bhagwani effected

control over AM's account.

147. Even when Bhagwani communicated with AM, he often misled AM.

148. In addition, Bhagwani excessively traded AM's account. Beginning in July 2010,

AM's account regularly appeared on the firm's Exception Reports. In the July 2010 Report, the

annualized turnover rate fur the account was 12.81 and the annualized cost-to-equity ratio was

33.51. The account appeared on ten of the next twelve Exception Reports, with generally

increasing turnover rates. ln the July 201 1 Report, the annualized turnover rate for the account

was 36.56 and the annualized cost-to-equity ratio was 19.25.

149. Bhagwani's excessive trading ultimately had a damaging effect on AM's account.

While Bhagwani was the broker on AM's account, he generated approximately $201,752 in

commissions and fees for himself and the firm from it, while the account suffered $34,453 in

losses.

26

150. During the period when Bhagwani was broker of record on AM's account, the

annualized turnover rate ior the account was 27.35, and the annualized cosl-to-equity ratio for the

account was 50 percent.

Customers NG and PG

151. In August 2009, after numerous cold calls to NG's office, NG and his wife, PG,

opened a non-discretionary joint account with Bhagwani al NSM.

152. From August 2009 to October 2011, the life of the account, NG and PG contributed

approximately $1,743,300 to the account. During that same time period, the account purchased

$39,679,438 worth of securities, and Bhagwani generated $452,518 in commissions and fees from

actively trading the joint account.

153. NG and PG'sjoint account also appeared on the firm's Exception Reports every

month in 2010 and for seven months in 2011. The annualized turnover rates for the account in the

Exception Reports ranged from 7.68 to 24.15, and the annualized cost-to-equity ratios fur the

account in the Exception Reports ranged from 15.43 to 26.65.

154. Bhagwani also made frequent misrepresentations to NG. Whenever NG and PG

asked Hhagwani about losses that appeared on their account statements, Bhagwani falsely told NG

and PG that the account was growing and the account statements were incorrect.

155. Bhagwani also misled NG and PG about the use ofmargin in theirjoint account.

Although they had signed a margin agreement, NG and PG instructed Bhagwani not to use margin

in theirjoint account. Bhagwani, however, did use margin in the account, without their

authorization. When NG and PG asked Bhagwani about the debit balance in their account,

Bhagwani falsely told them that there was none and that their account statements reflecting a

margin balance were wrong.

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156. On September 20, 2010, NG and PG received a letter from NSM's clearing firm

informing them that lhejoint account had a margin debit balance of ($2,185,944). NG and PG

faxed this letter to Bhagwani and asked him about the margin debit balance. Bhagwani faxed the

letter back to NG, with the notation, "Zero (0) debit balance as of 10/12/10."

157. Bhagwani also sent a separate letter to NG and PG on October 12, 2010, falsely

stating that there was no debit balance in theirjoint account. However, the October 2010 account

statement shows that there was a margin debit balance each day of the month of October 2010,

which ranged from a low of($641,239) to a high of($1,095,100).

158. One month later, Bhagwani sent another letter to NG and PG dated November 12,

2010. In that letter, Bhagwani again falsely stated that NG and PG'sjoint account had no debit

balance. Once again, NG and PG's account statement for November 2010 showed that the account

carried a margin debit balance each day of November 2010, ranging from a low of ($135,287) to a

high of ($1,144,552).

159. Between February and September 2011, Bhagwani faxed NG and PG inaccurate

profit and loss statements he created that purportedly showed monthly ''realized profits" in their

joint account. These statements falsely reflected that NG's and PG'sjoint account grew by tens of

thousands of dollars each month, when, in reality the account was highly leveraged and declining

in value.

160. On May 7, 201 1, Bhagwani faxed NG a document titled "April 2011, Profit &

Loss." Bhagwani wrote on the fax cover page: "Net Gains for April 2011 is $150,106.35."

161. On June 16,2011, Bhagwani faxed NG a document titled "Realized Gains" and

wrote on the fax cover page: ??Realized Gains Joint Account: $62,299.00." On July 22, 2011,

Bhagwani faxed a document to NG and wrote on the cover page: "Realized Gains Joint Account,

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$69,808.42." in realily, the value of lhe account declined between April and July 201 1 and

continued to decline thereafter.

162. in September 201 I, in an attempt lo avoid a margin call in NG and PG's account,

Bhagwani submitted a letter that purported to be from NG and PG to NSM's clearing firm

requesting a transfer of$150,000 from NG's Defined Benefit Pension Plan account to NG and

PG's joint NSM account ("Letter of Instruction").

163. Bhagwani created the Letter of Instruction and forged NG's and PG's signatures.

NG and PG did not know about the Letter of Instruction or the transfer of their funds requested

therein. Therefure, they did not authorize Bhagwani to sign their names to it.

164. The clearing firm sent NG a letter to confirm the accuracy of the Letter of

Instruction, and NG immediately informed the clearing firm that he had not sent the letter or

requested the transfer.

165. In October 2011, margin calls led to selloffs in NG and PG's joint account. As a

result, the account suffered nearly $1 million in losses.

SECOND CAUSE OF ACTION

Unauthorized Transactions(NASD Rule 21 10 and FINRA Rule 2010)

NSM, Balchandani, and Bhagwani

166. The Department realleges and incorporates by reference paragraphs 1 through 165

above.

167. As described above and detailed in Schedules A.1, A.2, A.3, and A.4, Balchandani

effected: 12 unauthorized trades in VR's non-discretionary account between September and

October 2008; 14 unauthorized trades in VP and SVP's non-discretionary account between March

and October 201 1; 29 unauthorized trades in SP's non-discretionary account between July 2009

and September 201 1; and 27 unauthorized trades in NP's non-discretionary account between June

29

2009 and October 2011. Balchandani executed the foregoing trades, without the knowledge,

aitthorization, or consenl of the customers or any persons with trading authority over the accounts.

168. As set forth above and detailed in Schedules A.5, A.6, and A.7, Bhagwani effected:

29 unauthorized trades in DB's non-discretionary account between January and October 2011; 18

unauthorized trades in RS's non-discretionary account between January and August 201 1; and 225

unauthorized trades in AM's non-discretionary account between May 2009 and July 2011.

Bhagwani executed the foregoing trades, without the knowledge, authorization, or consent of the

customers or any persons with trading authority over the accounts.

169. NSM is liable for the unauthorized trading of Balchandani and Bhagwani under the

doctrine of respondeat superior and as a control person under Section 20(a) of the Exchange Act.

170. As a result of the furegoing, NSM and Balchandani violated NASD Conduct Rule

2110 (for misconduct pre-dating December 15, 2008) and FINRA Rule 2010 (for misconduct on or

after December 15, 2008), and NSM and Bhagwani violated FINRA Rule 2010.

THIRD CAUSE OF ACTION

Churning(Willful Violations of Section 10(b) of the Exchange Act, Rule 10b-5 and

Violations of FINRA Rules 2020 and 2010)NSM, Bhagwani, and Balchandani

171. The Department realleges and incorporates by reference paragraphs 1 through 170

above.

172. Section 10(b) of the Exchange Act prohibits the use of any "manipulative or

deceptive device or contrivance" in connection with the purchase or sale of a security.

173. Rule 10b-5, promulgated under the Exchange Act, provides that:

30

It shall be unlawful for any person, directly or indirectly, by the

use of any means or instrumentality of interstate commerce, or ofthe mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit tostate a material fact necessary in order to make the statementsmade, in the light of the circumstances under which they weremade, not misleading, or

(c) To engage in any act. practice, or course of business whichoperates or would operate as a fraud or deceit upon any person, inconnection with the purchase or sale of any security.

174. FINRA Rule 2020 (f/k/a NASD Rule 2120) prohibits the same misconduct.

175. Balchandani churned the three accounts of customers VP and SVP, SP, and NP.

176. Balchandani controlled the activity in the accounts of customers VP and SVP, SP,

and NP by executing unauthorized transactions in their accounts.

177. The excessive trading activity in the accounts of customers VP and SVP, SP, and

NP, as evidenced by the high annualized turnover rates and high annualized cost-to-equity ratios in

the accounts, was inconsistent with their respective financial circumstances and/or investment

objectives.

178. Balchandani acted with scienter. He intentionally or at least recklessly handled the

accounts of customers VP and SVP, SP, and NP in a manner in which he placed his interests above

his customers' interests. Specifically, Balchandani handled the accounts with the intention and for

the purpose of generating commissions for himself and NSM, and without the intention of serving

his customers' interests.

179. In the course of conduct described above, Balchandani, in connection with the

purchases and sales of securities, directly or indirectly, by the use of the means or instrumentalities

of interstate commerce, or of the mails, or of any facility of any national securities exchange,

31

knowingly or at least recklessly: employed devices, schemes or artifices to defraud; engaged in

acts, practices, or courses of business which operated or would operate as a fraud or deceit upon

any person; and effected transactions in securities by means of any manipulative, deceptive, or

other fraudulent scheme, device, or contrivance.

180. In connection with his misconduct, Balchandani employed the means of interstate

commerce, the mails, and the facility of a national exchange by causing confirmation and account

statements reflecting the subject trades to be sent to customers VP and SVP, SP, and NP by

executing the subject trades through national securities exchanges.

181. Bhagwani churned AM's and DB's accounts.

182. Bhagwani controlled the activity in AM's and DB's accounts by executing

unauthorized transactions in their accounts.

183. The excessive trading activity in AM's and DB's accounts, as evidenced by the

high annualized turnover rates and high annualized cost-to-equity ratios in the accounts, was

inconsistent with their financial circumstances and/or investment objectives.

184. Bhagwani acted with scienter. He intentionally or at least recklessly handled the

accounts of customers AM and DB in a manner in which he placed his interests above his

customers' interests. Specifically, Bhagwani handled AM's and DB's accounts with the intention

and for the purpose of generating commissions for himself and NSM, and without the intention of

serving AM's or DB's interests.

185. In the course of conduct described above, Bhagwani, in connection with the

purchases and sales of securities, directly or indirectly, by the use of the means or instrumentalities

of interstate commerce, or of the mails, or of any facility of any national securities exchange,

knowingly or at least recklessly: employed devices, schemes or artifices to defraud; engaged in

32

acts, practices, or courses of business which operated or would operate as a fraud or deceit upon

any person; and effecled transactions in securities by means of any manipulative, deceptive, or

other fraudulent scheme, device, or contrivance.

186. In connection with his misconduct, Bhagwani employed the means of interstate

commerce, the mails, and the facility of a national exchange by causing confirmation and account

statemenls reflecting the subject trades to be sent to AM and DB and by executing the subject

trades through national securities exchanges.

187. NSM is liable for the foregoing fraudulent misconduct of Balchandani and

Bhagwani under the doctrine of respondeat superior and as a control person under Section 20(a) of

the Exchange Act.

188. By churning the aforementioned accounts, NSM, Balchandani, and Bhagwani

willfully violated Section 10(b) ofthe Exchange Act and Rule 10b-5 thereunder and also violated

FINRA Rules 2020 and 2010.

FOURTH CAUSE OF ACTION

Fraudulent Misrepresentations

(Willful Violations of Section 10(b) of the Exchange Act andRule 10b-5 and Violations of NASD Rules 2120 and 2110 and FINRA Rules 2020 and 2010)

Bhagwani for Misrepresentations to CP and JP

189. The Department realleges and incorporates by reference paragraphs 1 through 188

above.

190. In connection with the purchases and sales of securities, NSM, acting through

Bhagwani, intentionally or, at the least, recklessly made the following untrue statements of

material facts to CP and JP: (a) that CP and JP owned shares of other securities that did not appear

on their account statements; and (b) that the letter from NSM's clearing firm concerning the

margin debit balance in CP and JP' s account should be ignored.

33

191. Bhagwani employed the means of transportation or communication in interstate

commerce, including phone calls to CP and JP, in connection with his misrepresentations

regarding the securities purchased by CP and JP in their NSM account.

192. By engaging in the furegoing misconduct, Bhagwani willfully violated Section

10(b) ofthe Exchange Act and Rule 10b-5 and also violated NASD Rules 2120 and 21 10 and

FINRA Rules 2020 and 2010.

FIFTH CAUSE OF ACriONFraudulent Misrepresentations

(Willful Violations of Section 10(b) of the Exchange Actand Rule 10b-5 and Violations of FINRA Rules 2020 and 2010)

Bhagwani for Misrepresentations to NG and PG

193. The Department realleges and incorporates by reference paragraphs 1 through 192

above.

194. In connection with the purchases and sales of securities, Bhagwani intentionally or,

at the least, recklessly made untrue statements of material facts to NG and PG. Specifically, and as

detailed above, Bhagwani misrepresented that: (a) NG and PG's account statements were incorrect

and should be ignored, when, in fact, the statements were correct; (b) their account was generating

profits, when, in fact, it was declining in value; and (c) their account did not have a debit balance,

when, in fact, it did have a debit balance.

195. Bhagwani employed the means of transportation or communication in interstate

commerce, including phone calls, the mail and faxes to NG and PG, in connection with his

purchases and sales of securities in their account.

196. By engaging in the foregoing misconduct, Bhagwani willfully violated Section

10(b) ofthe Exchange Act and Rule 10b-5 and also violated FINRA Rules 2020 and 2010.

34

SIXTH CAUSE OF ACTION

Customer-Specific Suitability Violations(Violalions of NASD Rule 2310 and FINRA Rule 2010)

NSM and Balchandani

197. The Department realleges and incorporates by reference paragraphs 1 through 196

above.

198. Before it was superseded by FINRA Rule 231 1 on July 9, 2012, NASD Conduct

Rule 2310 required associated persons and members, in recommending the purchase, sale, or

exchange of a security, to have reasonable grounds fur believing that their recommendation is

suitable fur the customer based on the customer's disclosed security holdings and financial

situation and needs.

199. Balchandani recommended, through his unauthorized transactions, purchases and

sales of securities to customers SP and NP without having reasonable grounds to believe that his

recommendations were suitable for them based on their disclosed security holdings and financial

situation and needs.

200. Specifically, Balchandani's recommendations to purchase and se?l the securities set

forth on Schedules B.1 and B.2 were unsuitable for SP and NP in light of: (a) the risky and

aggressive nature of the recommended securities; (b) the relatively large size of the recommended

securities-which caused the accounts to be overconcentrated; (c) their investment objectives of

preserving their capital to pay for their college educations; and (d) their conservative risk

tolerances.

201. Rather than tailoring the investment strategy in the UTMA accounts of SP and NP

to their investment objectives and financial situation and needs, Balchandani improperly treated

the accounts as if they were speculative trading accounts.

35

202. NSM is liable fur the unsuitable investment recommendations made by Balchandani

under the doctrine of respondeat superior and as a control person under Section 20(a) of the

Exchange Act.

203. By recommending unsuitable investments to SP and NP, NSM and Balchandani

violated NASD Rule 2310 and FINRA Rule 2010.

SEVENTH CAUSE OF ACTION

Excessive Trading/Quantitative Suitability Violations(Violations of NASD Rule 2310, IM-2310-2, and FINRA Rule 2010)

NSM, Balchandani and Bhagwani

204. The Department realleges and incorporates by reference paragraphs 1 through 203

above.

205. Before it was superseded by FINRA Rule 2311, IM-2310-2(b)(2) specifically

prohibited excessive trading.

206. Balchandani excessively traded the accounts of customers VP and SVP, SP, and

NP.

207. Balchandani controlled the activity in the accounts of customers VP and SVP, SP,

and NP by executing unauthorized transactions in their accounts.

208. The excessive trading activity in the accounts of customers VP and SVP, SP, and

NP, as evidenced by the high annualized turnover rates and high annualized cost-to-equity ratios in

the accounts, was inconsistent with their respective financial circumstances and/or investment

objectives.

209. Bhagwani excessively traded AM's and DB's accounts.

210. Bhagwani controlled the activity in AM's and DB's accounts by executing

unauthorized transactions in their accounts.

36

211. The excessive trading activity in AM's and DB's respective accounts as evidenced

by the high annualized turnover rates and high annualized cost-to-equity ratios in the accounts, was

inconsistent with their respective financial circumstances and/or inveslmenl objectives.

212. NSM is liable for the excessive trading of, and quantitatively unsuitable investment

recommendations made by, Balchandani and Bhagwani under the doctrine of respondeat superior

and as a control person under Section 20(a) of the Exchange Act.

213. As a result of the furegoing, NSM, Balchandani, and Bhagwani violated NASD

Conduct Rule 2310, IM-2310-2, and FINRA Rule 2010.

EIGHTH CAUSE OF AcrioNForgery/Falsification of a Document

(FINRA 2010)Bhagwani

214. The Department realleges and incorporates by reference paragraphs 1 through 213

above.

215. By creating the Letter of Instruction and by signing the names of NG and PG to it,

without their authority or consent, Bhagwani falsified a document and committed forgery. As a

result of the foregoing, Bhagwani violated FINRA Rule 2010.

216. By submitting falsified and forged Letter of Instruction to NSM's clearing firm,

Bhagwani also violated FINRA Rule 2010.

NINTH CAUSE OF ACTION

Violations of FINRA Margin Requirements(NASD Rules 2520 and 2110 and FINRA Rules 4210 and 2010)

NSM

217. The Department realleges and incorporates by reference paragraphs 1 through 216

above.

37

218. Section 7(c) of the Exchange Act makes it unlawful fur a firm to extend or maintain

credit for a customer, except in compliance with certain regulations. Regulation T, as promulgated

by the Federal Reserve Board pursuant to Section 7, imposes restrictions on the ability of a broker-

dealer to extend credit for the purpose of purchasing, carrying or trading in securities.

219. During the relevant period, NASD Rule 2520(f)(7) and later FINRA Rule

4210(f)(7) provided that when a "margin call" as defined by Regulation T is required in a

customer's account, "no member shall permit a customer to make a practice of... meeting the

margin required by the liquidation of the same or other commitments in the account." During the

relevant period, NASD Rule 2520(f)(9) and later FINRA 4210(f)(9) further prohibited "free-

riding" in cash accounts and provided that, "no member shall permit a customer to make a

practice, directly or indirectly, of effecting transactions in a cash account where the cost of

securities purchased is met by the sale of the same securities."

220. NSM, through HJ, NB, Balchandani and RK, improperly made a practice of

effecting trades in the cash account of customers where the cost to buy the securities was met by

the sale of the same securities and/or allowing customers to meet Regulation T margin calls by

liquidating the same or other commitments in the accounts.

Free-Riding in CJP's Account

221. On Feburary 23, 2010, HJ purchased 2,000 shares of Arcelormittal SA stock in

CJP's cash account for a total of$128,951, the cost ofwhich was met by the sale of 750 shares of

the position on March 2,1010.

222. On August 25, 2010, HJ purchased 1,500 shares of Direxion Daily Small Cap Bull

3X ETF in CJP's cash account, the cost ofwhich was met by the sale ofthe entire position on

August 26, 2010.

38

223. On August 26,2010, HJ purchased $112,513 worth of securities, which included

1000 shares of CREE in CJP's cash account, the cost of which was met by selling 650 shares of

CREE on September 2,2010.

224. On September 27, 2010, HJ purchased 1000 shares of Schlumberger Ltd. stock in

CJP's cash account, the cost of which was met by a sale of the same stock, when HJ sold 600

shares of the stock on October 4, 2010.

225. Finally, on January 13, 2011, HJ purchased 1000 shares of International Paper stock

in CJP's cash account, the cost ofwhich was met by the sale ofthe stock on January 24, 2011.

Free Riding in MP's Account

226. On March 16,2011, NB purchased 500 shares of Apple stock in customer MP's

cash account, the cost of which was met by the liquidation of another position on March 23, 2011.

Following this transaction, NSM's clearing firm informed NSM that the account was in violation

of Regulation T.

227. On September 13, 2011, NB purchased 1000 shares of Goldman Sachs stock in

MP's cash account, the cost ofwhich was met in part by the sale of 100 shares ofthe same stock

on September 20, 2011. On September 26, 2011, NSM's clearing firm informed NSM, through

Bhasin, that the account was restricted for 90 days fur being in violation of Regulation T.

Free-Riding in NP's Account

228. On May 25, 2010, Balchandani purchased 1,000 shares of Baidu stock in NP's cash

account, the cost of which was met by the sale of the stock on June 10,2010.

229. On September 24, 2010, Balchandani purchased 10,000 shares of Direxion Daily

Small Cap Bear 3X Leverage, an ETF, in NP's cash account, the cost of which was met by the sale

of over two-thirds of the same position on October 4,2010.

39

Meeting Margin Calls by Liquidations in AP's Account

230. On March 26,2008, RK purchased in excess of $55,000 worth of Citigroup stock

for AP's accounl even though the cash in the account was approximately $4,800. The resulting

margin calls were met by sales of the stock on March 28,2008 and April 1,2008. On April 2,

2008, the account was placed on a 90-day trading restriction by NSM's clearing firm for violating

Regulation T.

23!. On August 26,2008, RK purchased 2,000 shares of ?CICI Bank Limited stock fur

$63,250 in AP's margin account. The resulting margin calls were met by sale of the entire position

on August 29,2008. On September 3,2008, the NSM's clearing firm again placed the account on

a 90-day trading restriction fur violating Regulation T.

232. On December 26,2008, RK purchased j 500 shares of Arcelormittal SA stock for

$36,537. The resulting margin calls were met by the sale of the entire position on January 2,2009.

On January 10,2009, NSM' s clearing firm again placed the account on a 90-day trading restriction

fur violating Regulation T.

233. On June 27,2011, RK purchased 1750 shares of Tata Motors stock for $39,095,

even though the cash available was $3152. The resulting margin call was met by the sale of the

entire position on June 29, 2011. On July 5, 2011, NSM's clearing firm once again placed the

account on a 90-day trading restriction for violating Regulation T.

234. By reason of the foregoing, NSM violated NASD Rules 2520(f)(7) and (f)(9) (for

misconduct befure December 2, 2010) and 2110 (for misconduct before December 15, 2008) and

FINRA Rule 4120(f)(7) and (f)(9) (for misconduct on or after December 2, 2010) and 2010 (for

misconduct on or after December 15,2008).

40

TENTH CAUSE OF ACTION

Failure to Report and Timely Report Events under NASD Rule 3070(NASD Rule 3070 and FINRA Rules 4530 and 2010)

NSM and Bhasin

235. The Department realleges and incorporates by reference paragraphs 1 through 234

above.

236. Before il was superseded by FINRA Rule 4530 on July 1,2012, NASD Rule

3070(c) required members to report to FINRA "statistical and summary information regarding

customer complaints in such detail as [FINRA] shall specify by the 1 5 th day of the month

following the calendar quarter in which customer complaints are received by the member." Under

Rule 3070(a), a "'complaint' includes any written grievance by a customer involving the member

or person associated with a member."

237. F?NRA Rule 4530(d) imposes similar reporting requirements on members.

238. During the relevant period, Bhasin was responsible for reporting NSM's customer

complaints to F?NRA under NASD Rule 3070 and FINRA Rule 4530.

239. As detailed in Schedule C, which is attached hereto and incorporated herein, from

February 2009 to February 2011, NSM failed to report to Fll\IRA statistical and summary

information regarding 27 written customer complaints, including eight regarding its cold-calling

practices, as required by NASD Rule 3070(c).

240. As detailed in Schedule D, which is attached hereto and incorporated herein, from

June 2011 through May 2012, NSM also failed to timely report to FINRA statistical and summary

infurmation regarding three additional complaints, as required by NASD Rule 3070(c) and FINRA

Rule 4530(d).

241. The untimely reported complaints ranged from five to six months late.

41

242. As a result of the forgoing, NSM and Bhasin violated NASD Rule 3070(c) and

FINRA Rules 4530(d) and 2010.

ELEVENTH CAUSE OF ACTION

Willful Form U4 Violations(FINRA Rules 1 122 and 2010 and Article V, Section 2(c) of the FINRA By-Laws)

Bhasin

243. The Department realleges and incorporates by reference paragraphs 1 through 242

above.

Form U4 Requirements

244. Article V, Section 2(c) of the FINRA By-Laws generally provides that every

application for registration filed with FINRA shall be kept current at all times by supplementary

amendments that must be filed within 30 days after learning of the facts or circumstances giving

rise to the amendment.

245. From at least 2010 through the present, Disclosure Question 14?(1) of Form U4,

which has changed slightly over that time period, has required registered persons to disclose

instances in which they have been named as a respondent or defendant in an investment-related,

consumer-initiated arbitration or civil litigation which alleged that they were involved in one or

more sales practice violations and which is: (a) still pending; (b) resulted in an arbitration award

against them; (c) was settled prior to May 18, 2009 for $10,000 or more; or (d) was settled after

May 18, 2009 fur $15,000 or more.

246. FINRA Rule 1122 provides that: "[n]o member or person associated with a member

shall file with FINRA information with respect to membership or registration which is incomplete

or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct

such filing after notice thereof."

42

Arbitration Filed by Customers CP and JP

247. On February 1 I, 201 1, CP and JP, who were customers of NSM, initiated an

arbitration proceeding wilh FINRA Dispute Resolution, Inc. ("FINRA-DR"), wherein they named

NSM and NSM registered representatives Bhasin, Balchandani, Bhagwani, RD, MOB, and

Burstein as respondents and alleged that those respondents were involved in one or more sales

practice violations. Specifically, in their Statement of Claim, CP and JP alleged, among other

things, that Balchandani, Bhagwani and RD churned their account and made misrepresentations of

material facts to them concerning their accounts and that Bhasin, MOB, and Burstein failed to

supervise Balchandani, Bhagwani and RD.

248. Bhasin was aware ofthe arbitration filed by CP and JP by March 14, 2011, at the

latest.

249. On February 12, 2012, NSM settled the proceeding for $255,000.

250. On, August 21, 2012, Bhasin finally disclosed the arbitration filed by CP and JP; in

that filing, Bhasin falsely stated that the notice of the arbitration was served on March 1, 2012.

Bhasin, however, reported the arbitration on Balchandani's Form U4 on March 25, 2011,and

stated in that filing that the firm had received the Statement of Claim on March 14,2011.

251. Bhasin willfully failed to disclose a material fact-the arbitration filed by CP and

JP-on his Form U4.

Arbitration Filed by KS, RKS, and SS

252. On September 28, 2011, NSM customers KS, RKS, and SS initiated an arbitration

proceeding with FINRA-DR, wherein they named NSM and NSM registered representatives

Balchandani, Bhagwani, Bhasin, Burstein, and MOB as respondents and alleged that respondents

were involved in one or more sales practice violations. Specifically, in their Statement of Claim,

43

KS, RKS, and SS alleged that NSM and Balchandani ignored their investment objectives and risk

tolerance, recommended and purchased wholly unsuitable investments, traded wilhoul

authorization, excessively traded their accounts, and engaged in free-riding in their accounts. The

Statement of Claim further alleged that Bhasin, MOB, and Burstein failed to supervise

Balchandani.

253. Bhasin was aware of the arbitration filed by KS, RKS, and SS by September 30,

2011.

254. Bhasin willfully failed to disclose a material fact-the arbitration filed by KS, RKS,

and SS--on his Form U4.

255. in June 2012, NSM settled the claims with KS, RKS, and SS for $70,000. As part

of the settlement agreement, KS, RKS, and SS agreed to dismiss their claims against Bhasin.

Arbitration filed by VY

256. On October 23, 2012, NSM customer VY initiated an arbitration proceeding against

NSM, registered representative AK, Bhasin, and NSM's clearing firm. The arbitration alleged that

NSM and its representatives engaged in sales practice violations including churning, unsuitable

recommendations, and an unsuitable investment strategy. The Statement of Claim further alleged

that Bhasin failed to supervise AK.

257. Bhasin was aware of the arbitration filed by VY by October 31,2012, at the latest.

44

258. Bhasin willfully failed to disclose a material fact-the arbitration filed by VY-on

his Form U4.

Summary of Bhasin's Willful Form U4 Violations

259. Bhasin willfully failed to disclose material facts or information-the foregoing

arbitrations-on his Form U4, and he also willfully filed false and misleading amendments to his

Form U4 wherein he failed to disclose the arbitrations.

260. By engaging in such misconduct, Bhasin acted in contravention of Article V,

Section 2 of FINRA's By-Laws and violated FINRA Rules 1 122 and 2010.

TWELFTH CAUSE OF ACTiON

Form U4 and Form U5 Violations(FINRA Rules 1122 and 2010 and Article V, Section 2(c) of the FINRA By-Laws)

NSM and Bhasin

261. The Department realleges and incorporates by reference paragraphs 1 through 260

above.

Additional Form U4 Requirements

262. From at least 2010 through the present, Disclosure Question 14?(3), has required

registered persons to disclose instances in which they have been the subject of an investment-

related, consumer-initiated, written complaint, not otherwise reported under Question 141(2),

which alleged that they were involved in one or more sales practice violations and contained a

claim fur compensatory damages of $5,000 or more.

Arbitration Filed by Customer AJ

263. On or about November 15, 2010, AJ, who was a customer of NSM, initiated an

arbitration proceeding with FINRA-DR, wherein he named NSM as a respondent and alleged that

his NSM broker, Bhagwani, was involved in one or more sales practice violations. Specifically, in

45

his Statement of Claim, AJ alleged, among other things, that Bhagwani excessively traded his

account and engaged in Iraud.

264. NSM and Bhasin were aware of the arbitration filed by AJ by December 1, 2010, at

the latest.

265. On or about January 31, 2011, NSM, acting through Bhasin, settled the arbitration

for $23,000.

266. NSM was required to file an amendment to Bhagwani's Form U4 to report the

arbitration within 30 days of December 1,2010 and the settlement within 30 days of January 31,

2011. NSM failed to timely file such amendment. The firm filed the requisite amendment to

Bhagwani's Form U4 on May 19, 201 1, approximately five and a half months and two months

late, respectively.

Arbitration Filed by Customer SSS

267. On or about February 28, 2011, SSS, who was a customer of NSM, initiated an

arbitration proceeding with FINRA-DR, wherein he named NSM and NSM broker RK as

respondents and alleged that RK was involved in one or more sales practice violations.

Specifically, in his Statement of Claim, SSS alleged, among other things, that RK excessively

traded his account and engaged in fraud.

268. NSM and Bhasin were aware of the arbitration filed by SSS by April 11,2011, at

the latest.

46

269. NSM was required to file an amendment to RK's Form U4 to report the arbitration

williin 30 days of April 1 1,201 1 . NSM failed lo timely file the amendment. The firm filed the

requisite amendment on November 11,201 ?, approximately six months late.

Arbitration Filed by Customers CP and JP

270. On February 1 1, 201 1, CP and JP, who were customers of NSM, initiated an

arbitration proceeding with FINRA-DR, wherein they named NSM and NSM registered

representatives Bhasin, Balchandani, Bhagwani, RD, MOB, and Burstein as respondents and

alleged that the respondents were involved in one or more sales practice violations. Specifically,

in their Statement of Claim, CP and JP alleged, among other things, that Balchandani, Bhagwani,

and RD churned their account and made misrepresentations of material facts to them concerning

their accounts and that Bhasin, MOB, and Burstein failed to supervise Balchandani, Bhagwani, and

RD.

271. NSM and Bhasin were aware of the arbitration filed by CP and JP by March 14,

2011, at the latest.

272. NSM was required to file an amendment to Bhagwani's, Balchandani's, RD's,

Bhasin's, MOB's, and Burstein's Form U4s to report the arbitration within 30 days of March 14,

2011.

273. NSM timely filed an amendment to report the arbitration on Balchandani's Form

U4 on March 25,201 1, but failed to report the arbitration on any of the remaining respondents'

Form U4s at that time.

274. NSM completely failed to report the arbitration on Bhagwani's Form U4 or Form

U5.

47

275. NSM did not report the arbitration on RD's Form U4 until November 8, 2012,

approximately 19 months late, and Burslein's Form U5 until September 4, 2012, approximately 17

months late.

Written Complaint Filed by CJP

276. On September 4,2012, NSM received a written complaint involving a sales practice

violation in excess of $5,000 from an attorney for NSM customer CJP. The complaint accused

NSM and its registered representative HJ of churning, unauthorized trading, and unsuitable margin

trading and sought damages of $492,674.14.

277. While NSM reported this complaint via a summary FINRA Rule 4530 filing on

October 10,2012, the firm failed to update HJ's Form U4 to report the complaint at that time.

This complaint should have triggered a filing by October 4, 2012 under question 14?(3) as HJ was

the subject of an investment-related, consumer-initiated complaint, which alleged that he was

involved in one or more sales practice violations involving compensatory damages of $5,000 or

more.

278. Rather than promptly reporting this complaint on HJ's Form U4, NSM waited until

after HJ had left the firm and filed a Form U5 amendment to report the complaint on December 11,

2012, approximately three months late.

Written Complaint Filed by BP

279. On January 1 1, 2012 and January 16,2012, NSM customer BP sent separate written

complaints to NSM and registered representative RN. The written complaints alleged that NSM

and RN and other brokers had made misrepresentations, and unsuitable recommendations, and

engaged in unsuitable trading. On April 2,2012, NSM made the required FINRA Rule 4530

filing. According to the filing, the complaint involved the poor performance of equity-listed

48

securities, and the disputed amount was "$5,000 or more/Cannot determine." However, NSM

failed lo limely reporl lhe complaint on RN's Form U4.

280. NSM was required to file an Amendment to RN's Form U4 within 30 days of

January 11, 2012, based upon question 14I(3)(a) on RN's Form U4, as the complaint was a

written, investment-related, consumer-initiated complaint alleging sales practice violations and a

claim of compensatory damages of $5,000 or more. NSM, through Bhasin, however, failed to

update RN's Form U4 to report the complaint until January 3, 2013, approximately 11 months late.

Form U5 Requirements

281. Article V, Section 3(a) of the FINRA By-Laws requires, among other things, firms

to give notice to FINRA, through Form U5, of the termination of the association of a person who is

registered with them within 30 days of the termination.

282. From at least 2012 through the present, Disclosure Question 7E.1 of Form U5 has

required registered persons to disclose instances in which they have been named as a respondent or

defendant in an investment-related, consumer-initiated arbitration or civil litigation which alleged

that they were involved in one or more sales practice violations and which is: (a) still pending; (b)

resulted in an arbitration award against them; (c) was settled prior to May 18, 2009 for $10,000 or

more; or (d) was settled after May 18,2009 for $15,000 or more.

Arbitration Filed by Customer MV

283. On August 21, 2012, MV, who was a customer of NSM, initiated an arbitration

proceeding with FINRA-DR, wherein he named NSM and NSM registered representative

Bhagwani as respondents and alleged that they were involved in one or more sales practice

violations. Specifically, in his Statement of Claim, MV alleged that NSM and Bhagwani engaged

in unauthorized trading.

49

284. NSM was aware of the arbitration filed by MV by September 19, 2012, at the latest.

285. NSM was required to file an amendment to Bhagwani's Form U5 to report the

arbitration within 30 days of September 19, 2012. NSM failed to timely file such an amendment.

The firm filed the requisite amendment to Bhagwani's Form U5 on January 3, 2013,

approximately three months late.

Untimely and Inaccurate Form U5 fur Burstein

286. On July 31,2011, Bhasin fired Burstein, NSM's CCO. Bhasin did not tell Burstein

why he fired him.

287. NSM was required to file an initial Form U5 fur Burstein within 30 days of July 31,

2011. NSM, however, failed to timely file his Form U5. The firm filed the requisite Form U5 for

Burstein on October 13, 2011, approximately six weeks late.

288. In addition, NSM filed an inaccurate initial Form U5 fur Burstein. On the October

13, 2011 Form U5, NSM falsely listed Burstein's termination date as October 13, 2011 (instead of

July 31, 2011) and also falsely listed his termination as being "Voluntary" (instead of being

involuntary).

Summary of Form U4 and Form U5 Violations

289. By failing to file and timely file the afurementioned amendments to Form U4s,

NSM and Bhasin, who was responsible for filing amendments to the Form U4s and Form U5s of

NSM's registered and associated person, acted in contravention of Article V, Section 2 of

FINRA's By-Laws and violated FINRA Rules 1122 and 2010.

290. By failing to timely file the aforementioned amendment to Bhagwani's Form U5

and by untimely filing a Form U5 fur Burstein with false information, NSM and Bhasin acted in

50

contravention of Arlicle V, Section 3 of FINRA's By-Laws and violated FINRA Rules 1 122 and

2010.

THIRTEENTH CAUSE OF ACTION

Telemarkeling Violations(NASD Rule 2212 and FINRA Rule 2010)

NSM and Bhasin

291. The Department realleges and incorporates by reference paragraphs 1 through 290

above.

292. Before it was superseded by FINRA Rule 3230 on June 29,2012, NASD Rule 2212

set forth certain requirements for members and associated persons that engaged in telemarketing.

NASD Rule 2212(a) prohibited members and associated persons from initiating a telephone

solicitation to any person who: (a) had previously stated that he or she did not wish to receive a

call made by or for the member; or (b) had registered their phone number on the Federal Trade

Commission's national do-not-call registry, with limited exceptions.

293. In addition, NASD Rule 2212(d) required members to establish and implement

procedures to comply with NASD Rule 2212(a), including having written policies for maintaining

a do-not-call list, training personnel engaged in telemarketing about the existence and use ofa do-

not-calllist, and recording and maintaining a do-not calllist. NASD Rule 2212(d) further required

members to honor: (a) a person's do-not-call request within a reasonable period of time, not to

exceed 30 days; and (b) a firm-specific do-not-call request for five years from the date of the

request.

294. Bhasin was responsible for NSM's compliance with NASD Rule 2212.

295. NSM, through Bhasin, failed to institute adequate procedures to prevent telephone

solicitations to persons whose numbers were on the firm-specific and national do-not-calllists.

51

296. Between 2009 and October 2010, NSM brokers or representatives made 21

telephone solicitations to 15 persons whose numbers were already on the firm's do-not-calllist, as

evidenced by the fact that those numbers were added to the list again after their first appearance on

the list. They made 1 1 of the 21 solicitations to seven persons whose numbers also appeared on the

national do-not-calllist. (See Schedule E, which is attached hereto and incorporated herein.)

297. As result of the foregoing, NSM and Bhasin violated NASD Rule 2212(a)(2), (a)(3)

and (d) and FINRA Rule 2010.

RELIEF REQUESTED

WHEREFORE, the Department respectfully requests that the Panel:

A. make findings of fact and conclusions of law that Respondents committed the

violations charged and alleged herein;

B. order that one or more of the sanctions provided under FINRA Rule 8310(a) be

imposed, including that NSM, Balchandani, and Bhagwani be required to disgorge

fully any and all ill-gotten gains and/or make full and complete restitution, together

with interest;

C. make specific findings that NSM, Balchandani, and Bhagwani willfully violated

Section 10(b) ofthe Exchange Act and Rule 10b-5 thereunder;

D. make specific findings that Bhasin's conduct, as alleged in the Eleventh Cause of

Action, was willful; the omitted information was material; and, the omission to state

material facts was on a Form U4 application; and

E. order that Respondents bear such costs of proceeding as are deemed fair and

appropriate under the circumstances in accordance with FINRA Rule 8330.

52

FINRA DEPARTMENT OF ENFORCEMENT

RRWRSYVNCZZDate: February 28,2014

Samuel L. lsr?1, AVP & Chief CollnselCarolyn Craig, DirectorKristy M. Tillman, Senior CounselFINRA, Department of Enforcement15200 Omega Drive, Third FloorRockville, MD 20850(301) 258-8546; (301) 208-8090 (fax)samuel.israel @finra.org(301) 258-8517; (202) 721-8300 (fax)carolyn.craig@finra.org(301) 258-8524; (202) 721-8388 (fax)kristy.tillman@finra.org

Michael A. Gross, Senior Litigation CounselFINRA, Department of EnforcementCrystal Corporate Center2500 N. Military Trail, Suite 302Boca Raton, FL 33431-6324(561) 443-8125; (561) 443-7998 (fax)michael.gross@finra.org

Authorized House CounselMember OH Bar Only

53

Schedule A.1Balchandani's Unauthorized Trades in VR's Account

N??. Trade Date Purchase! .. ,,uantity

? Syml?c,1

?

Price Principal 1

?r Sale 1

?

Comm./MarkupI

1 Amount

l 9/5/2008 P 1,000 V $72.59 $72,586.00 $3, I 25.00

2 9/22/2008 P 1,000 V $68.27 $68,265.00 $3,150.00

3 10/6/2008 S -2,000 V $20.09 $4,018.00 $32.50

4 I 0/6/2008 S -200 CSCO $52.35 $104,702.00 $32.50

5 10/8/2008 S -2,000 IBN $17.65 $35,299.80 $1,500.00

6 10/10/2008 S -200 LSI $3.88 $776.00 $32.50

7 IO/10/2008 S -100 NOK $9.43 $943.00 $32.50

8 IO/10/2008 S -200 INTC $5.63 $1,126.00 $32.50

9 10/10/2008 S -3,000 IBN $14.88 $2,976.00 $32.50

I0 10/10/2008 S -200 AFFX $15.91 $1,591.00 $32.50

11 10/10/2008 S -100 TWX $13.50 $40,499.70 $1,950.00

12 10/2 I/2008 S -300 ORCL $$18.34 $5,502.00 $32.50

Schedule A.2Balchandani's Unauthorized Trades in VP and SVP's Account

Purchase PrincipalNo. ?

'1'rade Date Qii:intity Symbol I?rice Comm./Markupor Sale Ainount

i 3/9/2011 P 2,000 MCP $50.32 $100,632.52 $3,262.52

2 3/22/2011 S -2,000 MCP $50.31 $IOO,616.80 $55.00

3 3/28/2011 P I,750 POT $59.93 $ I 04,879.62 $4,097. I 2

4 3/29/201 I P 1,750 POT $59.54 104, I 95.00 $3,412.50

5 3/29/2011 S -1,750 POT $59.93 $ I 04,879.62 $ (4,097.12)6 4/4/2011 S -1,750 POT $61.44 $107.520.18 $255.007 4/20/2011 S -3,000 CREE $39.21 $11 7,630.00 $300.008 4/20/2011 P 1,000 SOHU $96.93 $96,930.00 $950.00

9 4/25/2011 S -1,000 SOHU $102.21 $102,208.60 $1,031.40

10 4/26/2011 P l,000 SINA $136.12 $136,117.80 $1,337.8011 6/15/2011 S -30 SINA $89.89 $2,696.70 $0

I2 6/17/2011 S -390 SINA $81.54 $31,800.64 $0

13 6/17/2011 S -20 SINA $81.33 $1626.60 $0

t4 10/4/201 1 S -260 SINA $65.80 $16,926.00 $55.00

Scliedule A.3Balchandani's Unauthorized Trades in SP's Account

liirchase ?rincip:ilN?,. Trade 1)ate Qu ??ntity Nymml Price C?mm./Markup(,r Sale Amount

l 7/16/2009 S -200 BIDU $322.8 I $64,561.52 $0

2 I 0/28/2009 P 2,000 SPWRA $25.70 $51,395.60 $55.00

3 3/24/2010 S -2,000 SPWRA $18.60 $37,202.80 $55.00

4 3/24/2010 S -500 BRK/B $8?.32 $40,660.50 $55.00

5 4/20/2010 P 500 GS $160.62 $80,312.20 $0

6 4/2 I /20 I 0 S -500 GS $161.95 $80,976.20 $55.00

7 4/26/2010 P 500 GS $153.40 $76,698.00 $0

8 4/27/2010 S -500 GS $155.95 $77,975.00 $255.00

9 5/25/2010 P I,OOO BIDU $69.57 $69,573.30 $2,345.00

10 6/10/2010 S -l,000 BIDU $72.22 $72,223.40 $155.0011 6/22/2010 P I,200 IBN $39.28 $47,138.40 $1,549.92

I 2 6/22/2010 P 2,000 CNX $38.51 $77,020.20 $2,583.2013 7/22/2010 S -2,000 CNX $39.05 $78,104.00 $155.00

14 7/26/2010 S -1,200 IBN $39.37 $47,244.00 $55.00

15 7/27/2010 P l,OOO NFLX $107.92 $107,919.50 $3,631.70

16 8/9/2010 P 2,500 TZA $31.66 $79,145.50 $2,673.00

I7 8/ 1 I /2010 S -2,500 TZA $34.38 $85,955.00 $555.00

18 8/13/2010 P 2,500 TNA $36.85 $92,123.75 $2,812.25

19 8/17/2010 S -2,500 TNA $38.70 $96,743.25 $255.00

20 8/18/2010 P 3,000 TZA $35.49 $106,472.40 $3,582.9021 8/19/2010 S -3,000 TZA $36.99 $110,979.90 $455.00

22 8/24/2010 P 3,000 TNA $34.17 $102,512.40 $3,462.00

23 911/2010 S -3,000 TNA $36.74 $110,233.20 $455.00

24 9/8/2010 P 4,000 TZA $32.98 $131,938.40 $4,384.80

25 7/26/2011 P 1,700 HDB $37.14 $63,138.00 $1,530.00

26 8/2/2011 S -1,333 TZA $40.57 $54,079.81 $55.00

27 8/26/2011 P 500 JOYG $77.66 $38,827.51 $943. l i28 8/30/2011 S -500 JOYG $82.86 $41,430.00 $55.00

29 9/27/2011 S -1,700 HDB $30.56 $51,952.00 $55.00

Schedule A.4Balchandani's Unauthorized Trades in NP's Account

Purchase l'iincip:,lNIA Trade Date (,) i,a ii lily Symbol I'rice C?mm./Nlarkupor S?,le An,ount

i 6/15/2009 P 1,500 MT $33.43 $50,139.00 $55.00

2 7/23/2009 S -1,500 MT $37.44 $56,163.00 $600.00

3 9/24/2009 P I,000 RIMM $83.55 $83,549.00 $0

4 9/25/2009 S -1,000 RIMM $83.55 $83,549.00 $0

5 9/25/2009 P 1,000 RIMM $83.55 $83,549.00 $0

6 10/I/2009 S -Il BRK/B $3,262.86 $35,891.46 $0

7 3/24/2010 S -LOOO RIMM $74.19 $74,192.00 $55.00

8 3/24/20 I 0 S -900 DRYS $5.82 $5,239.80 $55.00

9 4/20/2010 P 500 GS $160.62 $80,312.20 $0

10 4/21/2010 S -500 GS $161.95 $80,976.20 $55.00

ll 4/26/2010 P 500 GS $153.40 $76,698.00 $0

12 4/27/20 I 0 S -500 GS $155.71 $77,855.00 $255.00

13 5/11/2010 P l,OOO MT $35.74 $35,736.00 $55.00

14 5/25/2010 P 1,000 BIDU $69.57 $69,573.30 $2,345.00

15 6/10/2010 S -1,000 BIDU $72.18 $72,180.00 $155.00

16 6/22/2010 P 1,800 IBN $39.28 $70,707.60 $2,324.88

17 7/26/2010 S -1,800 IBN $39.41 $70,939.26 $55.00

18 7/27/2010 P 900 V $78.96 $71,063.91 $2,193.03

19 9/24/2010 S -1,000 MT $33.14 $33,142.00 $55.00

20 9/24/2010 S -900 V $72.13 $64,918.80 $55.0021 9/24/2010 P 10,000 TZA $28.89 $288,861.00 $9.765.00

22 10/4/2010 S -7,200 TZA $26.65 $191,887.20 $55.00

23 8/26/2011 P 500 JOYG $77.66 $38,827.51 $943.11

24 8/30/2011 S -500 JOYG $82.82 $41,410.40 $too.0025 9/9/2011 P 600 JOYG $79.66 $47,796.98 $1,152.98

26 9/9/2011 S -933 TZA $49.43 $46,118.19 $55.00

27 10/18/2011 S -600 JOYG $79.58 $47,748.00 $55.00

Schedule A.5Bhagwani's Unauthorized Trades in DB's Account

Trade ?

Purchase Principal ? C?nini./N(?. Q?i?intity Synil?()1 Price

I)ate ?,r Sale Aniount Markupi I/26/20 I 1 S - I,000 BIDU $107.18 $107, I 84.80 $ 55.00

2 1/26/2011 P 2,000 HDB $ I 52.60 $305,206.00 $ 9,070.00

3 1/27/2011 P 1,900 HDB $152.60 $289,945.70 $ 8,616.50

4 1/27/2011 S -2,000 MT $ 37.62 $ 75,244.00 $ 55.00

5 1/27/2011 P 400 AMZN $184.82 $ 73,928.00 $ -00

6 3/16/20 I 1 P 500 TNA $ 74.64 $ 37,317.50 $ 570.00

7 3/2 I /2011 S -500 TNA $ 78.64 $ 39,320.00 $ 55.008 3/28/2011 P 1,500 RIG $ 80.80 $121,195.05 $ 3,070.05

9 3/28/2011 P 2,500 POT $ 59.40 $148,495.00 $ 4,570.00

I0 3/28/2011 S -1,000 HDB $163.92 $ 163,924.20 $ 1,055.00

11 3/28/2011 S -900 HDB $163.80 $147,420.45 $ 755.0012 3/28/2011 P 5,000 NVDA $ 19.92 $ 99,620.00 $ 3,070.00

13 4/11/2011 S -1,500 RIG $ 82.96 $124,446.30 $ 55.0014 4/15/2011 P 2,000 MCP $ 74.81 $149,610.00 $ 1,070.00

15 4/26/2011 P 2,000 X $ 51.52 $103,030.00 $ 970.0016 4/26/2011 S -2,500 POT $ 58.66 $146,650.25 $ 755.00

17 5/3/2011 S -1,000 MCP $ 78.47 $ 78,470.10 $ 555.00

18 5/3/2011 S -1,000 MCP $ 78.49 $ 78,490.10 $ 555.00

19 5/4/2011 P 1,500 GMCR $ 78.49 $117,727.50 $ 952.50

20 5/5/2011 P 1,500 MCP $ 71.14 $106,705.05 $ 70.05

21 5/5/2011 P 5,000 REDF $ 13.55 $ 67,764.50 $ 70.00

22 5/11/2011 P 1,500 MCP $ 66.78 $100,172.55 $ 70.05

23 5/12/2011 S -2,000 TNA $ 85.73 $171,460.00 $ -00

24 5/12/2011 P 2,000 TNA $ 85.66 $171,320.00 $ 140.00

25 5/12/2011 S -5,000 NVDA $ 20.13 $100,661.50 $ 55.00

26 5/12/2011 S -350 GMCR $ 76.28 $ 26,698.00 $ 55.00

27 5/19/2011 S -1,150 GMCR $ 76.93 $ 88,467.09 $ 55.00

28 5/20/2011 S -150 MCP $ 59.38 $ 8,907.02 $ 55.00

29 6/15/2011 S -370 MCP $ 51.46 $ 19,041.20 $ -00

1

Schedule A.6Bhagwani's Unauthorized Trades in RS's Account

Trade Purchase Priiicipal ? Conini./N'.. Date ?,r Sale Quantity Symi,?l Price

Anic,unt Markup

i 1/25/2011 P 4,000 F $ 17.87 $ 71,480.00 $ 00

2 I/27/2011 P 250 AMZN $184.82 $ 46,205.00 $ 00

3 2/10/2011 S -250 AMZN $185.61 $ 46,403.70 $ 55.00

4 2/ll/2011 P 3,000 LVS $ 46.89 $140,670.00 $ 570.00

5 2/Il/2011 S -3,000 LVS $ 47.55 $142,653.00 $ 55.00

6 2/23/2011 P 1,000 AMZN $ I 79.93 $179,930.00 $2,570.00

7 4/20/2011 P l,OOO SINA $145.66 $145,660.00 $2,570.00

8 4/20/2011 S -LOOO AMZN $184.20 $184,200.00 $ 55.00

9 7/25/2011 P 3,000 MCP $ 61.00 $183,009.90 $1,569.90

10 7/26/2011 P 1,000 SINA $116.42 $116,420.00 $1,070.00

- 11 7/26/2011 S -3,000 MCP $ 64.45 $193,342.00 $1,055.00

12 8/3/2011 S -1,000 PBR $ 32.40 $ 32,400.00 $ 55.00

13 8/3/2011 S -1,200 BAC $ 9.46 $ 11,352.00 $ 55.00

14 8/4/2011 S -1,000 PBR $ 30.08 $ 30,080.00 $ 55.00

I5 8/8/2011 S -4,000 F $ 9.98 $ 39,920.00 $ 55.00

16 8/10/2011 S -300 SINA $ 94.36 $ 28,308.00 $ 55.00

17 8/18/2011 S -200 SINA $ 95.30 $ 19,060.00 $ 55.00

18 8/22/2011 S -1,000 SINA $ 90.49 $ 90,490.00 $ 55.00

Schedule A.7Bhagwani's Unauthorized Trades in AM's Account

'1'r:ide Plirch:ise or Pri,icip:,I C?nini./No.Date Sale Quantity Syrnbol I?rice

Amount NIarkup

l 5/21/2009 P 2,500 ?FN $ 25.91 $ 64,775 $ 2,190

2 5/2 I /2009 P 2,500 CAT $ 36.84 $ 92,110 $ 3,113

3 5/26/2009 S -l,000 XLNX $ 20.08 $ 20,082 $ 55

4 5/26/2009 P 500 MA $170.66 $ 85,330 $ 1,415

5 5/29/2009 S -2,500 IFN $ 29.44 $ 73,590 $ 1,055

6 6/1/2009 S -5,000 FAS $ 10.66 $ 53,305 $ 1.055

7 6/1/2009 S -2,500 TBSI $ IO.87 $ 27,179 $ 555

8 6/8/2009 S -2,500 CAT $ 38.72 $ 96,803 $ 555

9 6/8/2009 P 2,500 IFN $ 30.90 $ 77,244 $ 2,555

io 6/8/2009 P 2,500 BUCY $ 31.38 $ 78,445 $ 1.555

li 6/8/2009 P 2,500 SPWRA $ 30.43 $ 76,085 $ 2,555

12 6/11/2009 S -2,500 SPWRA $ 32.37 $ 80,928 $ 555

13 6/15/2009 P 2,500 MT $ 33.75 $ 84,370 $ 2,555

14 6/15/2009 P 2,500 AKS $ 18.84 $ 47,112 $ 1,592

I5 7/15/2009 S -500 MA $171.05 $ 85,526 $ 55

16 7/17/2009 S -2,500 AKS $ 20.39 $ 50,978 $ 555

17 7/20/2009 S -2,500 MT $ 36.22 $ 90,559 $ 1,055

18 7/22/2009 P 1,000 CMG $ 90.46 $ 90,460 $ 1,755

19 7/22/2009 P 5,000 SNDK $ 19.33 $ 96,640 $ 1,900

20 7/23/2009 S -2,500 BUCY $ 32.74 $ 81,853 $ 255

21 7/28/2009 P 2,500 CHN $ 23.90 $ 59,755 $ 1,855

22 7/28/2009 P 1,000 MCD $ 56.56 $ 56,558 $ 533

23 7/28/2009 S -1,000 CMG $ 94.49 $ 94,489 $ 1,055

24 7/28/2009 P 2,000 CYOU $ 39.98 $ 79,968 $ 2,555

25 7/28/2009 P 2,000 SPWRA $ 32.41 $ 64,823 $ 2,055

26 7/28/2009 P l,OOO MCD $ 58.40 $ 58,404 $ 1,956

27 7/30/2009 S -1,000 MCD $ 56.56 $ 56,558 $ (533)

28 7/31/2009 S -2,000 SPWRA $ 32.41 $ 64,823 $(2,055)

29 7/31/2009 P 1,400 SPWRA $ 32.41 $ 45,376 $ 1,439

30 8/21/2009 S -1,000 MCD $ 56.27 $ 56,271 $ 531

31 8/26/2009 P 1,600 SPWRA $ 26.07 $ 41,710 $ 416

32 8/26/2009 P 2,500 BAC $ 17.99 $ 44,973 $ 450

33 8/26/2009 P 2,000 BUCY $ 31.16 $ 62,316 $ 620

34 9/8/2009 S -2,500 CHN $ 23.70 $ 59,258 $ 255

35 9/9/2009 S -2,000 CYOU $ 40.22 $ 80,440 $ 255

36 9/15/2009 S -5,000 SNDK $ 20.65 $103,255 $ 1,055

37 9/15/2009 S -2,500 MGM $ 13.34 $ 33,353 $ 555

38 9/15/2009 S -2,000 BUCY $ 33.50 $ 67,003 $ 555

39 9/16/2009 S -3,000 SPWRA $ 31.38 $ 94,134 $ 1,455

,

Schedule A.7Bhagwani's Unauthorized Trades in AM's Account

'liude I?lircllilse ?r l?rincipal Conini./No. QuantityDuie SaleSymbol Price

Amount M?,rk,ip

40 9/17/2009 P 2,500 STEC $ 33.06 $ 82,655 $ 1,555

41 9/21/2009 P 500 BHI $ 44.34 $ 22,170 $

42 9/21/2009 P 2,500 BHI $ 44.34 $110,848 $ 3,403

43 9/24/2009 P 500 R?MM $ 83.62 $ 41,812 $ -

44 9/25/2009 P I,5OO CAT $ 53.36 $ 80,046 $ 3,055

45 9/25/2009 P 2,500 MT $ 38.95 $ 97,375 $ 3,555

46 10/8/2009 S -1,500 BHI $ 44.03 $ 66,051 $ 55

47 10/14/2009 S -1,500 BHI $ 46.20 $ 69,303 $ 555

48 10/19/2009 S -1,500 CAT $ 57.05 $ 85,581 $ 1,055

49 10/21/2009 P 1,500 AMGN $ 61.00 $ 91,500 $ 2,175

50 10/23/2009 P 1,500 CYOU $ 36.19 $ 54,285 $ 1,680

51 11/13/2009 S -3,333 IFN $ 30.68 $102,243 $ 1,055

52 11/24/2009 P 5,000 ING $ 13.40 $ 67,005 $ 2,055

53 11/24/2009 P 1,000 TNA $ 37.77 $ 37,774 $ 1,256

54 12/4/2009 S -2,500 MT $ 40.77 $101,929 $ 555

55 12/21/2009 S -1,000 TNA $ 41.39 $ 41,392 $ 355

56 12/28/2009 P 2,000 FLR $ 46.90 $ 93,805 $ 2,855

57 12/28/2009 P 2,500 SPWRA $ 25.18 $ 62,953 $ 2,055

58 I/8/2010 S -2,000 FLR $ 49.67 $ 99,346 $ 555

58 1/15/2010 P 2,000 TXT $ 22.61 $ 45,215 $ 1,455

60 1/19/2010 P l,000 CREE $ 56.07 $ 56,072 $ 1,855

61 1/20/2010 S -1,000 CREE $ 62.81 $ 62,806 $ 255

62 1/20/2010 P 3,000 XLNX $ 24.70 $ 74,104 $ 2,488

63 1/28/2010 P 2,500 SNDK $ 29.97 $ 74,930 $ 2,305

64 2/3/2010 S -1,500 XLNX $ 24.54 $ 36,813 $ 55

65 2/8/2010 S -1,300 SNDK $ 26.49 $ 34,440 $

66 5/21/2010 S -300 RiMM $ 61.72 $ 18.517 $

67 5/26/2010 S -200 RIMM $ 60.42 $ 12,084 $

68 6/21/2010 P 1,500 CYOU $ 35.07 $ 52,605 $

69 6/21/2010 S -1,500 CYOU $ 36.19 $ 54,285 $(1,680)

70 6/24/2010 S -2,000 RIMM $ 58.64 $?17,280 $

71 6/25/2010 P 600 RIMM $ 53.98 $ 32,387 $ 55

72 6/25/2010 P 700 RIMM $ 53.64 $ 37,545 $ 55

73 6/25/2010 P 700 RIMM $ 54.02 $ 37,811 $ 55

74 6/30/2010 P 2,500 SPWRA $ 20.35 $ 50,874 $

75 6/30/2010 S -2,500 SPWRA $ 20.97 $ 52,429 $(1,555)

76 7/12/2010 S -500 RIMM $ 53.84 $ 26,921 $ 55

77 7/12/2010 S- -500 RIMM $ 53.68 $ 26,841 $ 55

78 7/12/2010 P 500 RIMM $ 52.47 $ 26,235 $

2

Schedule A.7Bhagwani's Unauthorized Trades in AM's Account

'I't':ide ; Purchase ?r l'rincipal C?mm./Nll. I Quantity Synibol Price

r)ate Sale Amount NIarkup

79 7/12/2010 P 500 RIMM $ 52.47 $ 26,235 $

80 7/13/2010 P 1,000 BIDU $ 70.76 $ 70,761 $

81 7/13/2010 S -1,000 B?DU $ 73.57 $ 73,570 $

82 7/19/2010 P I,OOO BIDU $ 72.15 $ 72,150 $

83 7/19/2010 S -750 AAPL $245.23 $1 83,920 $ 55

84 7/ I 9/2010 P 750 AAPL $242.28 $181,708 $

85 7/19/2010 S -l,000 BIDU $ 72.61 $ 72,612 $ 55

86 7/20/2010 S -1,000 VMW $ 71.62 $ 71,624 $ 110

87 7/20/2010 P I,000 VMW $ 70.33 $ 70,330 $

88 7/26/2010 P 750 TZA $ 30.47 $ 22.853 $

89 7/28/2010 S -750 TZA $ 31.48 $ 23,610 $

90 7/29/2010 P 1,000 TZA $ 31.76 $ 31,760 $

91 7/29/2010 S -1,000 TZA $ 32.91 $ 32,914 $ 110

92 8/4/2010 S -1,500 DD $ 41.83 $ 62,748 $ 55

92 8/11/2010 P 1,500 TNA $ 39.06 $ 58,583 $ 1,541

94 8/13/2010 P 1,500 TNA $ 36.49 $ 54,730 $ 1,555

95 8/13/2010 P 5,000 NVDA $ 9.65 $ 48,255 $ 1,305

96 8/17/2010 S -1,500 TNA $ 38.49 $ 57,738 $ 55

97 8/17/2010 S -1,500 TNA $ 38.74 $ 58,116 $ 55

98 8/19/2010 P l,OOO TNA $ 36.85 $ 36,854 $ 1,055

99 8/24/2010 S -5,000 NVDA $ 9.78 $ 48,906 $

100 8/27/2010 P 2,500 TZA $ 39.49 $ 98,720 $

101 8/27/2010 S -2,500 TZA $ 39.76 $ 99,403 $

102 8/31/2010 S -5,000 TNA $34.11 $170,550 $

103 8/31/2010 P 5,000 TNA $ 34.15 $170,726 $

104 9/1/2010 S -1,000 TNA $ 36.86 $ 36,865 $ 55

105 W 17/2010 P 2,000 TZA $ 30.62 $ 61,235 $ 1,055

106 9/27/2010 S -750 BUCY $ 71.63 $ 53,723 $ 55

107 9/29/2010 P 500 TZA $ 26.42 $ 13,210 $

108 10/19/2010 P 1,500 TNA $ 52.21 $ 78,315 $

109 10/20/2010 S -1,500 TNA $ 53.10 $ 79,644 $ 55

110 10/26/2010 P 3,000 TNA $ 53.79 $161,370 $

Ill 10/28/2010 S -l,OOO HES $ 63.10 $ 63,104 $ 55

112 11/2/2010 P 5,000 BGFV $ 14.67 $ 73,355 $

113 11/2/2010 S -5,000 ING $ 11.12 $ 55,605 $ 55

114 11/2/2010 S -1,500 TNA $ 54.28 $ 81,423 $ 55

115 11/2/2010 S -1,500 TNA $ 54.73 $ 82,098 $ 55

116 ? ? /4/2010 P 10,000 F $ 15.66 $? 56,600 $

117 11/4/2010 S -10,000 F $ 15.87 $158,700 $

3

Schedule A.7Bhagwani's Unauthorized Trades in AM's Account

'rrade ' /i,rcl,ase ?r l'rincipal Comm./N,,.

1)ate Sale Quulility S?'nibol 1?riceAmount M:,rkup

118 lim/2010 P 2,500 WATG $ 11.23 $ 28,063 $

119 1 I/15/2010 S -2,500 WATG $ 9.3 I $ 23,266 $ 55

120 11/15/2010 S -5,000 F $ I 7.06 $ 85,305 $

121 11/ I 5/2010 P 10,000 F $ 17.17 $171,700 $

122 11/2312010 S -4,000 TNA $ 56.04 $224,179 $ 55

123 I 1 /23/2010 S - I,000 TNA $ 56.23 $ 56,226 $ 55

124 11/23/2010 P 5,000 TNA $ 56.00 $280,000 $

125 12/1/2010 S - t,500 CNX $ 44.15 $ 66,226 $ 55

126 12/2/2010 S -5,000 F $ 16.81 $ 84,055 $ 55

127 12/2/2010 P 5,000 F $ 16.66 $ 83,300 $

128 12/3/2010 S -5,000 LVS $ 49.63 $248,133 $

129 12/3/2010 P 5,000 LVS $ 49.00 $244,993 $

130 12/6/2010 S -2,500 TNA $ 65.90 $164,755 $ 55

131 12/6/2010 P 5,000 LVS $ 49.08 $245,420 $

132 12/6/2010 S -5,000 LVS $ 48.95 $244,755 $

133 12/6/20!0 P 2,500 TNA $ 65.31 $163,271 $

134 12/7/2010 P 2,500 TNA $ 68.42 $171,044 $

135 12rU2010 S -1,250 TNA $ 67.90 $ 84,880 $ 55

136 12/7/2010 S -5,000 BGFV $ 14.37 $ 71,842 $ 55

137 12/7/2010 S -2,500 TZA $ 16.83 $ 42,078 $ 55

138 12/9/2010 S -2,001 TNA $ 68.10 $136,274 $ 220

139 12/9/2010 S -500 TNA $ 68.01 $ 34,006 $ 55

140 12/9/2010 P 2,500 TNA $ 68.42 $171,050 $

141 12/9/2010 P 2,500 YOKU $ 36.96 $ 92,395 $

142 12/9/2010 S -2,500 YOKU $ 38.33 $ 95,826 $

143 12/10/2010 S -5,000 F $ 16.69 $ 83,450 $

144 12/10/2010 P 2,500 GMCR $ 33.97 $ 84,925 $

145 12/10/2010 S -1,249 TNA $ 70.56 $ 88,124 $ 55

146 12/13/2010 S -2,500 LVS $ 46.04 $115,100 $

147 12/13/2010 P 2.500 LVS $ 45.51 $113,775 $

148 12/13/2010 P 2,500 TNA $ 71.16 $177,900 $

149 12/14/2010 P 2,000 BBY $ 35.89 $ 71,770 $

150 12/15/2010 S -2,000 BBY $ 35.89 $ 71,770 $

151 12/15/2010 S -2,500 TNA $ 71.16 $177,900 $

152 12/15/2010 P 1,700 TNA $ 71.16 $120,972 $

153 1/4/2011 P 5,000 MGM $ 15.65 $ 78,270 $ 570

154 1/6/2011 P l,OOO TNA $ 75.67 $ 75,670 $ 70

155 l/7/2011 S -5,000 MGM $ 16.35 $ 81,755 $ 455

156 1/7/2011 S -2,500 GMCR $ 35.41 $ 88,516 $ 555

4

Schedule A.7Bhagwani's Unauthorized Trades in AM's Account

'Iii, de liirchl?si ?r l'rincip:,1 (:(,nini./No.Sale Qu:,Iltily Syn?I,ol I'riceDate Amoi,nt Markup

157 1/Il/2011 P 5,000 MGM $ 16.38 $ 81,920 $ 470

158 1/12/2011 P 5,000 NVDA $ 20.99 $104,940 $ 640

159 1/12/20 I I S -1,000 TNA $ 77.42 $ 77,422 $ 2551 60 I/ I 2/20 I I S -5,000 NVDA $ 21.32 $106,600 $

161 I/14/201 I P 2,000 TNA $ 76.83 $153,650 $ 70

162 1/14/2011 S -5,000 MGM $ 16.75 $ 83,755 $ 355

163 I/14/2011 S -2,000 TNA $ 77.87 $155,737 $ 455

164 1/20/2011 P l,000 TNA $ 71.45 $ 71,449 $ 70

165 I/25/2011 P 5,000 F $ 17.98 $ 89,920 $ 570

166 1/26/2011 P 500 HDB $149.49 $ 74,744 $ 740

167 1/26/201 1 S -5,000 F $ 18.37 $ 91,855 $ 155

168 1/26/2011 S -I,OOO TNA $ 73.67 $ 73,674 $ 255

269 2/1/2011 S -2,000 TNA $ 75.08 $150,152 $ 55

170 2/1/201 I P 2,000 TNA $ 74.16 $148,313 $ 570

171 2/2/201 l P 1,500 TNA $ 76.13 $114,191 $ 105

172 2/7/2011 S -1,500 TNA $ 78.35 $117,519 $ 355

173 2/8/2011 S -1,000 TNA $ 79.41 $ 79,414 $ 55

174 2/8/2011 P 1,000 TNA $ 78.94 $ 78,940 $ 70

175 2/8/2011 S -1,500 TNA $ 79.21 $118,815 $ 55

176 2/8/2011 P 1,500 TNA $ 78.92 $118,375 $ 70

177 2/9/2011 P 1,500 TNA $ 80.03 $120,040 $ 70

178 2/1 1/2011 S -1,500 TNA $ 82.24 $123.365 $ 555

179 2/14/2011 S -2,000 TNA $ 83.81 $167,622 $ 55

180 2/14/2011 P 2,000 TNA $ 83.49 $166,987 $ 70

181 2/15/2011 P 1,500 TNA $ 83.39 $125,080 $ 70

182 2/16/2011 S -1,500 TNA $ 84.52 $126,773 $ 355

183 2/18/2011 P 1,000 CLF $ 99.35 $ 99,350 $ 70

184 2/22/2011 P 1,000 TNA $ 83.87 $ 83,870 $ 70

185 3/1/2011 S -500 HDB $150.42 $ 75,211 $ 55

- 186 3/2/2011 P 1.250 TNA $ 79.51 $ 99,390 $ 540

187 3/2/2011 S -2,000 TNA $ 79.89 $159,777 $ 555

188 3/2/201 i P 2,000 TNA $ 78.28 $156,560 $

189 3/2/2011 S -l,000 TNA $ 79.70 $ 79,700 $ 55

190 3/3/2011 S -1,000 CLF $ 99.55 $ 99,550 $ 55

/91 3/3/20 it S -1,250 TNA $ 82.71 $103,388 $ 305

192 3/4/2011 P 10,000 MU

F

$ 11.71 $117,120 $ 1,070

193 4/14/2011 P 1,250 MCP $ 71.88 $ 89,850 $ 75

194 4/14/2011 P 1,250 MCP $ 71.88 $ 89,850 $ 75

195 4/14/2011 S -1,250 MCP $ 72.84 $ 91,050 $ 305

5

Schedule A.7Bhagwani's Unauthorized Trades in AM's Account

'1'r?ide Purchase ?r l'rincip:il Comni./No.Dule Sale Quantity Symbol I'rice

Amount NI:?rkiip

196 4/14/2011 S -1,250 MCP $ 72.77 $ 90,963 $ 305

197 4/20/201 I S -2,500 LVS $ 45.95 $1 14,876 $ 55

I 98 4/20/2011 P l,ooo TNA $ 85.49 $ 85,490 $ 70

199 4/2112011 S -1,000 TNA $ 88.44 $ 88,440 $ 355

200 4/26/201 I P 1,000 X $ 51.50 $ 51,500 $ 470

201 4/26/2011 P 900 SOHU $103.96 $ 93,566 $ 921

202 4/26/2011 S -1,000 TNA $ 91.24 $ 91,240 $ 255

203 4/27/2011 S -400 SOHU $107.67 $ 43,068 $ 355

204 4/27/20 I l S -500 SOHU $107.55 $ 53,775 $ 355

205 4/29/2011 S -5,000 SPWRA $ 22.05 $110,226 $ 55

206 5/2/20 It P !,000 TNA $ 95.29 $ 95,285 $ 70

207 5/4/2011 P l,OOO GMCR $ 78.42 $ 78,420 $ 570

208 5/5/2011 P 1,500 MCP $ 71.14 $106,705 $ 70

209 5/5/2011 P 5,000 REDF $ 13.55 $ 67,765 $ 70

210 5/24/201? S -1,000 GMCR $ 78.72 $ 78,720 $ 55

211 5/25/2011 P 500 TNA $ 80.13 $ 40,065 $ 70

212 7/i/2011 P 1,000 SINA $108.50 $108,500 $ 1,070

213 7/7/2011 S -500 TNA $ 91.37 $ 45,685 $ 355

214 7/7/2011 P l,OOO SINA $108.50 $108,500 $ 1,070

215 7/8/2011 P 1,000 TNA $ 89.03 $ 89,030 $ 570

216 7/8/2011 P 1.000 TNA $ 89.03 $ 89,030 $ 570

217 7/12/2011 S -500 TNA $ 91.37 $ 45,685 $ 355

218 7/13/2011 S -l,ooo SINA $114.50 $114,500 $ 1,055

219 7/13/2011 P 1,000 TNA $ 89.03 $ 89,030 $ 570

220 7/13/2011 P 1,000 TNA $ 89.03 $ 89,030 $ 570

221 7/15/2011 P 2.500 MCP $ 52.93 $132,320 $ 1,070

222 7/18/2011 S -1,000 SINA $114.50 $1 14,500 $ 1,055

223 7/19/2011 S -2,500 MCP $ 53.29 $133,225 $ 55

224 7/20/2011 S -1.400 TNA $ 82.81 $115,934 $ 55

225 7/20/2011 P 2,500 MCP $ 52.93 $132,320 $ 1,070

6

Schedule B.1Balchandani's Unsuitable Recommendations in SP's Account

liircliase l'rincip:ilN?. 1'rude I):?te Quantity Sym MIl Price Conini./Markup?r Sale Anio uiit

i IO/28/2009 P 2,000 SPWRA $25.70 $51,395.60 $55.00

2 3/24/2010 S -2,000 SPWRA $ I 8.60 $37,202.80 $55.00

3 4/20/2010 P 500 GS $160.62 $80,312.20 $0

4 4/21/2010 S -500 GS $161.95 $80,976.20 $55.00

5 4/26/2010 P 500 GS $153.40 $76,698.00 $0

6 4/27/2010 S -500 GS $155.95 $77,975.00 $255.007 5/25/2010 P I,OOO B?DU $69.57 $69,573.30 $2,345.00

8 6/10/2010 S -l,000 BIDU $72.22 $72,223.40 $155.00

9 6/22/2010 P 1,200 IBN $39.28 $47,138.40 $1,549.92

10 6/22/2010 P 2,000 CNX $38.51 $77,020.20 $2,583.2011 7/22/2010 S -2,000 CNX $39.05 $78,104.00 $155.00

12 7/26/2010 S -I,200 IBN $39.37 $47,244.00 $55.00

13 7/27/2010 P l,OOO NFLX $107.92 $107,919.50 $3,631.70

I4 8/9/2010 P 2,500 TZA $31.66 $79,145.50 $2,673.00

15 8/11/2010 S -2,500 TZA $34.38 $85,955.00 $555.0016 8/13/2010 P 2,500 TNA $36.85 $92,123.75 $2,812.25

17 8/17/2010 S -2,500 TNA $38.70 $96,743.25 $255.00

18 8/18/2010 P 3,000 TZA $35.49 $106,472.40 $3,582.90

19 8/19/2010 S -3,000 TZA $36.99 $110,979.90 $455.00

20 8/24/2010 P 3,000 TNA $34.17 $102,512.40 $3,462.0021 9/1/2010 S -3,000 TNA $36.74 $110,233.20 $455.00

22 9/8/2010 P 4,000 TZA $32.98 $131,938.40 $4,384.80

23 7/26/2011 P 1,700 HDB $.37.14 $63,138.00 $1,530.00

24 8/2/2011 S -1,333 TZA $40.57 $54,079.81 $55.00

25 8/26/2011 P 500 JOYG $77.66 $38,827.51 $943.l l

26 8/30/2011 S -500 JOYG $82.86 $41,430.00 $55.00

27 9/27/2011 S -1,700 HDB $30.56 $51,952.00 $55.00

Schedule B.2Balchandani's Unsuitable Recommendations in NP's Account

?urchase Princip?,lN??. Trade Date Quantity Symbol Price C?mm./Markup

or Sale Ani(mntI 6/15/2009 P I,500 MT $33.43 $50,139.00 $55.002 7/23/2009 S -1,500 MT $37.44 $56,163.00 $600.00

3 9/24/2009 P I,000 RIMM $83.55 $83,549.00 $0

4 W25/2009 S -1,000 RIMM $83.55 $83,549.00 $0

5 9/25/2009 P 1,000 RIMM $83.55 $83,549.00 $0

6 3/24/2010 S -l,000 RIMM $74.19 $74,192.00 $55.00

7 4/20/2010 P 500 GS $160.62 $80,312.20 $0

8 4/21/2010 S -500 GS $161.95 $80,976.20 $55.00

9 4/26/2010 P 500 GS $153.40 $76,698.00 $0

I0 4/27/2010 S -500 GS $155.71 $77,855.00 $255.00

li 5/11/2010 P i,000 MT $35.74 $35,736.00 $55.00

12 5/25/2010 P 1,000 BIDU $69.57 $69,573.30 $2,345.00

13 6/10/2010 S -1,000 BIDU $72.18 $72,180.00 $155.00

14 6/22/2010 P 1,800 IBN $39.28 $70707.60 $2,324.88

15 7/26/2010 S -1,800 IBN $39.41 $70,939.26 $55.00

16 7/27/2010 P 900 V $78.96 $71,063.91 $2,193.03

17 9/24/2010 S - 1,000 MT $33.14 $33,142.00 $55.00

18 9/24/2010 S -900 V $72.13 $64,918.80 $55.0019 9/24/2010 P 10,000 TZA $28.89 $288,861.00 $9,765.00

20 10/4/2010 S -7,200 TZA $26.65 $191,887.20 $55.00

21 8/26/2011 P 500 JOYG $77.66 $38,827.51 $943.11

22 8/30/2011 S -500 JOYG $82.82 $41,410.40 $100.00

23 9/9/2011 P 600 JOYG $79.66 $47,796.98 $1,152.98

24 9/9/2011 S -933 TZA $49.43 $46,118.19 $55.00

25 10/18/2011 S -600 JOYG $79.58 $47,748.00 $55.00

Schedule CUnreported Customer Complaints Reportable

Under NASD Conduct Rule 3070(c)

No. DateRegistered

Customer Cc,niplaint Source ?f ComplaintRepresentative

Eniail to NSM ge,ieral emaili 2/25/2009 RH Cold-calling practices Unknown address

Overcharged; Rep. failed to SEC Website/ Email to2 5/ I /2009 HN refund markup as promised RN Compliance

3 6/9/2010 RP Losses RK Email to Rep.

Email to NSM general email4 6/10/2009 SM Unauthorized transactions NB address

5 6/17/2009 PK Cold calling Unknown Forwarded to firm from F?NRA

Email to NSM general eniail6 10/10/2009 VB Cold calling; do not call Unknown address

Email to NSM general email7 10/13/2009 DS ? Cold calling; do not call Unknown address

Cold calling; cease and desist Email to NSM general email8 10/20/2009 DS2 calls Unknown address

Unanswered calls; Rep.failed to close account as

9 12/10/2009 HS requested HJ Email to Rep,

Losses; Rep. failed to followinstructions; unable to reach Letter to clearing firm forwarded

10 3/17/2010 MMP Bhasin NB to Bhasin

Cold calling: high pressure1I 3/23/2010 KB sales tactics KG Forwarded from SEC

Excessive markups; Rep.

failed to return calls; Rep.failed to provide requested

12 4/14/2010 PD information Balchandani Email to Rep.

13 4/16?2010 JTP Very high commissions NB Email to Rep.

14 4/30/20 IO JTP Unauthorized transactions NB Email to Rep.

TJ15 5/1/2010 Excessive commissions HJ Email to Rep.

16 5/10/2010 PM Inappropriate behavior Bhagwani Email to Rep.

17 5/27/2010 JTP Losses NB Email to ReE

Rep. failed to close account;18 5/28/2010 AM would not return calls NB Email to Burstein and Rep

Unauthorized transactions;misrepresentations

19 6/22/2010 BS concerning commissions Bhagwani E-mail to Rep.

1

Schedule CUnreported Customer Complaints Reportable

Under NASD Conduct Rule 3070(c)

RegisteredN(). I)ate Custc,nier Complaint S?,urce ?i C?,niplaintRepresentative

Losses; commissions; failure20 6/24/2010 CM to recei ve statements NB Letter to Rep,

21 8/2/2010 CA Unauthorized transactions RD Email to Rep.

Excessive markups and22 8/3/20 I 0 GC margin calls in account IA E-mail to Rep.

Excessive markups not23 8/15/2010 AB refunded as promised Balchandani Email to Rep.

Disrupting cold calling to24 8/25/2010 MD doctor's office Unknown Better Business Bureau

Unanswered calls; can'tconfirm investments;

25 9/9/2010 KWS misrepresentations Balchandani E-mail to Rep.

E-mail to Sterne Agee; forwarded26 1/18/2011 SGP Not able to reach Rep. Balchandani to Bhasin

Cold calling; Rep. pretending

to be a doctor to get customer Email to NSM general email27 2/28/2011 SS on phone Unknown address

2

Schedule DCustomer Complaints Reported LateUnder FINRA Rule 3070(c)/4350(d)

DateDate Customer Com i)laint Registered Rep. Source 1)ate Dtie

, ReportedLetter to SterneAgee; forwarded to

6/7/11' DM Churning Bhagwani NSM 7/15/2011 12/9/2011Performance; margincalls; di fficulty reaching

5/IO/12 VM broker. HU E-mails to Bhasin 7/15/2012 1/04/2013

Complaints about losses;5/23/12 RCP inability to reach Rep. HJ E-mail to Rep. 7/15/2012 1/03/2013

1 NSM asserts it did not receive this complaint until 9/16/2011. but it was mailed from Sterne Agee on 6/7/2011.

Schedule E

Phone Numbers Added to the Firm-Specific Do-Not-Call List Multiple Times

Ph?,ne Sul,se(luent Addliidividual liiitials initial DateNuiiil?er Date(s)

xxx-xxx-1703 BP 7/10/2009 4/9/2010xxx-xxx-0197 NU 7/10/2009 9/15/2009xxx-xxx-1588 SAP 4/24/2009 10/5/2010

xxx-xxx-3333 VH 8/18/2008 8/17/2009; 8/19/2009;12/16/2009

xxx-xxx-8206 SAS 4/2/2009 5/20/2009xxx-xxx-9086 BHP 10/9/2008 4/27/2010xxx-xxx-2641 AS 8/18/2008 2/10/2010; 10/1/2010

xxx-xxx-6868 AC 8/20/2008 6/17/2010xxx-xxx-3838 PP 10/8/2008 6/24/2009; 10/5/2009xxx-xxx-2804 IB 1/22/2010 6/8/2010

xxx-xxx-3009 BBS 3/27/2009 7/1/2009xxx-xxx-3920 AP2 8/19/2009 11/24/2009; 9/21/2010xxx-xxx-7950 SD 11/13/2008 4/20/2009; 9/15/2009xxx-xxx-1300 KP 1/6/2010 2/24/2010xxx-xxx-9500 RHS 4/20/2009 4/27/2010

Calls Made to Numbers on the National Do-Not-Call List

Natic,iial DNC Date Aclcled t? FirmPhone Nuni?er liidividual liiitial 1.ist Adcl DNCI)ate

xxx-xxx-0197 NU 4/30/2009 9/15/2009

xxx-xxx-3333 VH 12/6/2008 8/17/2009; 8/19/2009;12/16/2009

xxx-xxx-8206 SAS 9/27/2008 5/20/2009xxx-xxx-9086 BHP 9/6/2003 4/27/2010xxx-xxx-6868 AC 10/17/2007 6/17/2010xxx-xxx-3838 PP 8/5/2009 6/24/2009; 10/5/2009

xxx-xxx-7950 SD 4/29/2009 4/20/2009; 9/15/2009